Healthcare costs are rising!
According to recent studies, healthcare rates are increasing this year anywhere from 5 to 8 percent. This is a critical benefit to offer your employees. What can you do to control these costs while still providing a competitive solution?
Of course, if you’re going the traditional health plan route, it’s popular for many of my clients to offer high deductible plans and have their employees shoulder as much of the premium as possible. It’s not uncommon for companies to fully cover individuals but not their families. This is not a great solution because it increases costs for your workers, and there are other strategies to consider.
For example, if you have a high deductible plan, make sure you couple it with a Health Saving Account or HSA. HSAs are very inexpensive to set up and act like a 401(K) for your healthcare. Your employees can put away up to $4,150 this year ($8,300 for families and they can contribute an extra $1,000 if they’re over 50) and it’s entirely pre-tax like a 401(K) contribution. Funds can then be taken out throughout the year to use for many qualified non-reimbursable costs such as flu shots, acupuncture, fertility enhancement, and lab fees. Different from other flex plans, HSA funds never expire, and you don’t have to use them by year-end – they’ll just roll over to the next year and grow. Employees can take their accounts with them if they leave your company and they can also direct how their funds are invested.
I’ve seen a growing number of clients also opt for Health Reimbursement Accounts or HRAs for their business. HRAs can be used in addition to or in place of your existing health plans. Put very simply, an HRA allows you to contribute pre-tax money to an employee’s account, and that employee can then use the funds to buy their own health insurance. There are various forms of HRAs so it’s best to consult with an expert to help you choose. My clients who have HRAs continue to contribute the same amounts to their employees’ healthcare but they’re in more control of these contributions. HRAs allow employees more flexibility to choose their own plan from the healthcare exchanges or a local group insurance provider. It also cuts down on internal administrative time and reduces any potential exposure to private health information that may become inadvertently disclosed during an annual health insurance review.
Another growing healthcare option for businesses is captive insurance. This is a form of self-insurance and has traditionally been popular with larger companies that have better access to data and can afford to cover their losses. However, over the past few years, many captive insurance programs have been launched for smaller companies to join. You can Google “captive insurance” in your state to find one. Captive insurance entities have companies like yours as shareholders who all share the risk of loss, but the more entities that participate, the easier it is to spread that risk. These programs are normally managed by experienced executives with a background in health insurance and have proven to be a great way to better control costs while offering excellent benefits.
If you don’t want to jump fully into a captive insurance program, you can offer another option that’s been growing in popularity: a hybrid plan. For these plans, your employees cover most or all of the expenses of healthcare up to a certain amount. After that, your group insurance policy kicks in. So in a way, you’re insured at the lowest level. A hybrid plan takes more internal management and works best when your workforce has a lower history of healthcare issues or trends younger demographically. By paying out of pocket and having a group plan kick in to cover any catastrophic costs, you’re taking on more of the burden so your group premium will be lower. The less your employees are using healthcare, the more you’ll save. Opponents of this strategy say it may discourage employees from seeking healthcare when they need it, especially mental health services. But if managed and communicated the right way, plans like these can be very cost-effective.
Finally, a quick healthcare tax tip from a Certified Public Accountant (that’s me). If you’re giving your employees a raise this year, you might want to consider contributing more to their healthcare plans instead. Why? Because an increase in wages gets taxed to the employee (and you have to pay employer taxes). However, an increased healthcare contribution is not taxable to your employees, and it’s deductible for your company. It’s a win-win for saving taxes and, in the end, your employee still walks away with a higher net paycheck.
It’s no secret that healthcare is the most important benefit for employees. Smaller companies have a more difficult time providing these benefits, and as you grow your workforce, these costs can become quite significant. This is a benefit you have to have and by offering some of the options above, you’ll be able to provide an answer whenever a current or prospective employee asks – and you’ll be positioned to attract and retain the best talent.