All small employers want to ensure that their employees are healthy and financially protected in case of medical problems. Unfortunately, the rising cost of health coverage has made it impossible for some small companies to continue to pay for all or even some of their employee's health coverage, whether or not they are subject to the employer mandate that starts on January 1, 2014. What can you do now to maximize your health care assistance for your staff?
Small employer health exchanges
The government'ss solution to rising premiums was to create a government-run marketplace where competition would drive costs by allowing employees in small companies to choose their coverage. The marketplace is called the Small Business Health Options Program (SHOPs).
SHOPs were supposed to be open by October 1 of this year to enable employees to select their coverage for 2014; unfortunately, the government has announced a postponement for SHOPs, giving employees only a single plan until 2015.
SHOPs are open to companies with no more than 100 employees. However, states can limit participation in these exchanges to businesses with up to 50 employees until 2016.
For more information, check the questions and answers from the IRS.
Health Savings Accounts (HSAs) are consumer-driven health plans because the first dollars of service are born by the individual. Insurance steps in once the deductibles are satisfied, but these are "high deductibles," as you'll see. Out-of-pocket medical costs can be paid on a tax-free basis with funds from a special savings account. Overall, the cost of HSAs (the insurance premiums and the savings account contributions) is lower than traditional health coverage.
The basic HA scenario:
- There must be a high-deductible health plan (HDHP) in place. What qualifies as an HDHP is defined annually by IRS-set limits. For 2013, insurance is an HDHP if there is an annual deductible of no less than $1,250 for self-only coverage or $2,500 for family coverage, and the out-of-pocket expenses (deductibles, co-payments, and other amounts other than premiums) do not exceed $6,250 for self-only coverage, or $12,500 for family coverage. (HDHP amounts for 2014 will be announced in June 2013.)
- There is a savings account. Contributions are tax deductible and withdrawals for qualified medical expenses are tax free. Employees own their accounts, can use them as they see fit, and take unused amounts with them when they leave the job. Contribution limits are fixed annually; 2013 limits are $3,250 for self-only coverage or $6,450 for family coverage. An additional $1,000 can be contributed for those age 55 or older by the end of the year.
Find more about HSAs in IRS Publication 969.
Small businesses pay higher premiums per employee than larger companies because of the size of their group. Small businesses may be able to lower their per-employee cost by obtaining coverage through associations (large groups) that offer this benefit to their members. Consider membership to access health coverage through:
- Chambers of commerce
- National Federation of Independent Business (NFIB)
- Professional and trade associations
Few businesses today foot the entire health care bill for their staff; instead most share the cost with employees. For those exempt from the employer mandate starting in 2014, there's no mandatory percentage or share you must bear. However, keep in mind that you must pay at least 50% in order to qualify for the federal small employer health insurance credit. Note: Starting in 2014, the credit is applicable only to premiums paid through SHOPs.
Suggestions for sharing costs:
- Bear the cost of coverage for your employees and let them pay for added cost of family coverage, if desired.
- Enable employees to pay premiums on a pre-tax basis using premium-only cafeteria plans (learn more here).
State insurance plans
About a dozen states offer special health insurance programs for small businesses. For example, New York has a program for companies with up to 50 employees, but not every small business qualifies.
If you currently have coverage and are facing big premium increases or are thinking about coverage for 2014, start to explore your options now. Talk to an insurance agent and shop around.