How to Reduce the Cost of Providing Health Care Coverage for Your Employees

Health insurance costs are a constant concern for small business owners. In the past year employers paid a larger share of their workers’ health care premiums than ever before, and premiums increased by 9 percent, and many small businesses reported even steeper hikes.

According to a 2011 survey by the Kaiser Family Foundation/Health Research & Educational Trust, the average cost of family health care coverage is $15,073, with workers paying $4,129 toward their premiums and employers paying the remaining $10,944.

While businesses are not required to provide health care insurance to employees, offering it as a benefit can be critical to hiring and retaining talent, as well as ensuring a healthy workforce and fewer employee sick days.

But with costs climbing at a faster rate than wages, how does a small business keep up? Here are some tips for reducing your small businesses health care costs.

Make Your Plan Win-Win for All

Do your research to help determine the best options for you and your employees. For example, can you afford to offer dental and vision plans as well as general health care coverage? These plans tend to be more affordable to individuals, so this may be an area where you can realize savings.

Pay close attention to deductibles and co-pays. If you have a relatively young and healthy workforce, increasing these limits will bring down the cost of monthly premiums. Of course, everyone’s out-of-pocket expenses will go up.

As you assess your business and employee needs, it may be useful to ask for feedback from your team. What would they prefer? Keep in mind that it is illegal to ask about an employee’s medical history.

And don’t forget to shop around! eHealthInsurance.com is a useful site that lets you compare the cost and scope of plans for small business owners.

Get to Know the Affordable Health Care Act

The Affordable Care Act includes a number of provisions for small business owners and employees, some of which are already in place, with more to come in 2014. Here’s what you need to know about your coverage entitlements and cost savings provided by the Act:

• Tax credits for small employers – If you have fewer than 25 employees, you can benefit from a tax credit up to 35 percent to offset the cost of insurance. In 2014, this credit increases to 50 percent!
• Insurers must accept everyone in your group – If you have 2-50 employees, insurers can’t deny or cancel your business coverage based on the health status of your employees or their dependents.
• Get the same purchasing power as big companies – Small business don’t have the same buying power as larger companies because they have a smaller pool of people to cover, so premiums tend to increase exponentially when you hire an older employee or someone gets sick. Starting in 2014, however, small businesses with fewer than 100 employees can shop in an Affordable Insurance Exchange. This new market will pool workers together with other people in the exchange, spreading the risk for insurers and lowering premiums for small businesses.

Read more about how the Act helps small businesses on Healthcare.gov.

Consider a Health Savings Account (HSA)

HSAs are tax-free savings accounts that can be used to pay for certain medical expenses and prescription drugs that fall under the deductible of a regular insurance plan. Essentially, HSAs allows your employees to build a tax-advantaged pool of cash they can use to cover out-of-pocket costs their insurance plan doesn’t cover. HSAs, however, must be paired with a high-deductible health care plan (HDHP) and therefore tend to be more advantageous to healthier employees who can tolerate the higher out-of-pocket costs called for in a high deductible plan. Likewise, offering a higher deductible plan lets you save on monthly employer premiums.

Read more about HSA’s from Barbara Weltman in her blog post on SBA.gov: Another Look at Health Savings Accounts.

Think About Flex Spending Accounts (FSA)

An FSA involves setting aside pre-tax dollars through a payroll deduction to cover eligible medical costs not covered by health insurance. Eligible medical expenses include treatment such as dental work, chiropractic care, psychological care, and more, although funds must be used in the year they are deducted. FSAs can save business owners money by giving you the option of reducing the number of eligible expenses covered under your health care plan, thereby lowering premiums.

Use Online Tools to Understand Your Coverage Options

In the wake of the Affordable Health Care Act, a number of resources are now available to help small business owners understand their options for providing health care coverage for employees. Healthcare.gov, for example, includes information for both the self-employed and small business owners on how to get affordable coverage and care for employees.

Don’t Forget Wellness Plans

A healthy team means lower premiums for you and happy employees. Read Dawn Rivers Baker's 10 Steps to a Microbusiness Wellness Program for practical and inexpensive ideas.

About the Author

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley