You run a tiny shop but you’d like to offer employees (including yourself) some sort of health insurance. As you’ve probably found out by now, the cost is simply out of control. Most policies for small businesses can set you back as much as $350 per month per employee, says Ben Geyerhahn, director of special projects for Small Business Majority. Premium increases for small businesses (with fewer than 200 employees) paying for family coverage rose 8 percent last year, according to the Kaiser Family Foundation’s 2012 Survey of Employee Benefits. That’s compared to a 4 percent rise for all employers.
The small business exchanges that will open in 2014 as part of the Affordable Health Care Act could provide welcome relief to some owners. Called the Small Business Health Care Options program or SHOP, these exchanges will be open to businesses with fewer than 50 to 100 employees, depending on the state, and are expected to help cut costs and administrative headaches for small employers. Premiums may be as much as $600 less per year for individuals under the exchanges, according to a recent study published by Health Affairs, and as many as 10 million small business employees are expected to become insured through the SHOP program.
Several small business owners oppose the health care reform law, however, because it mandates that companies provide health insurance for their full-time employees. Some have even said they will consider hiring fewer workers or cutting back on existing employees’ hours to avoid paying for health insurance.
Business owners who do want to provide insurance and are looking forward to the exchanges still have a year to wait until they are up and running. In the interim, there are some stop gap measures you can take to help defray the costs of health care coverage for you and your employees.
Check out your state programs. Some states such as New York, Massachusetts and Utah already have small business insurance exchanges of one type or another in place. Check with your state’s department of insurance to find out what’s available for your business. What’s more, Geyerhahn has noticed some insurers are already responding to the new law and lowering premiums, or at least premium increases. So if you haven’t shopped for a policy in a while you may find in some cases health insurance is a bit more affordable.
Consider high deductible insurance with a savings account. Premiums are considerably less expensive for health care policies with high deductibles. In exchange for the increased out-of- pocket expenses you have the option of offering and using a Health Savings Account to help pay those costs..
With an HSA you enroll in a qualified health insurance plan with a deductible of at least $1,250 for single coverage and $2,500 for family coverage. In 2013, singles may contribute a maximum of $3,250 to an HSA and $6,450 for families. (People age 55 and older may deposit an additional $1,000 over these limits.)
Earnings on the account are tax-free, and no taxes are paid on withdrawals used for qualified medical expenses. Any money you don’t use for health care rolls over from year to year and your account also goes with you from job to job.
Many times large employers contribute directly to employee HSAs to entice them to choose less expensive high-deductible policies. Some small employers who can’t afford to offer health insurance will set up and even contribute a small amount to HSAs for employees who buy their own high deductible insurance.
Look into Health Reimbursement Arrangements. These are special tax-advantaged accounts funded completely by the employer that employees can use to help pay for qualified medical expenses or health insurance premiums. Small business owners who can’t afford to offer health insurance often use these accounts to help defray some of their employees’ health care costs. While funding the accounts certainly adds to the employer’s costs, depending on how much the employer decides to contribute to each employee, the total may still be far less than the cost of providing insurance.