Across the nation, employers are either spending a lot more to cover employees with health insurance or dropping that as a company benefit completely. According to the nonprofit Commonwealth Fund, the average cost of providing employees with family coverage has reached a national average of $13, 027. Yet, in more than half of the states (27, in fact), the average state-wide cost was even higher.
Between 2003 and 2009, the average cost of family health insurance policies rose by a whopping 45 percent in Pennsylvania and by 50 percent in Maryland. The worst hit was Louisiana with a 59-percent hike.
Almost a third of the people in the U. S. without health insurance work for companies with fewer than 100 employees, according to a March 2008 population survey. Another 2008 survey by the Kaiser Family Foundation found that while large companies have continued to provide health insurance at relatively unchanged levels, the percentage of small companies doing so fell to just 59 percent.
Small Business Owners Lose When They Stop Covering Employees
Small businesses can be harmed in several ways when they drop coverage for employees. The better benefits offered by big firms can funnel high-quality employees away from small businesses in droves.
Small companies are also at more of a disadvantage when employees are sick than larger firms are. That’s because small firms lack a reserve of employees with the knowledge and skills to replace workers who are out sick. That gap can cripple productivity, depress moral and give customers the impression that a business is no longer capable for servicing their needs all because critical personnel are missing.
Another way that small businesses suffer more is that they often have to pay a lot more to cover employees because they lack the buying power of bigger employers. So, what can small business owners do to dig themselves out of this hole?
Health Reimbursement Arrangements Work For Small Business Owners
While small businesses may not be able to pay for an employee’s individual health insurance plan, many times state laws let employers reimburse their employees tax-free via a Section 105 HRA Plan.
A Health Reimbursement Arrangement (HRA) can include as much or as little coverage as an employer deems necessary. It’s simply an agreement as to which health care costs an employer will reimburse employees for and it can include health insurance premiums. It’s a business expense for company and a tax-free benefit for employees.
Employers decide whether to keep all, part or none of the funds they contribute for employee health care expenses at year end. They also set whether former employees, such as retirees, may continue to access unused reimbursement amounts.
Health Savings Accounts Offer Small Business Owners More
Another form of consumer-driven health care, health savings accounts are an easy-to-manage alternative for small business owners. HSA Plans reduce paperwork for the business by shifting control to the employees. With Health Savings Plans, employees determine which financial institutions will manage their health savings account (HSA) so the employer invests less time in setting up accounts.
Both the employer and employee may contribute to an HSA Health Plan, and employee contributions can serve as tax deductions to reduce their income taxes. In the move toward high-deductible health insurance to keep premium costs down, more banks and other financial institutions are making it easier to set up Health Savings Plans. They are also increasing options that make an HSA more attractive to employees.
Small Business Tax Credits Are A Bonus
Millions of small businesses were sent postcards last April to increase awareness of the new tax credits available to them. To be qualified, an employer must provide at least half of the expense for health insurance for some employees, and must have fewer than 25 full-time employees. That means businesses with less than 50 part-time employees may also qualify.