Philly.com
February 25, 2019
Feb. 25--How much does healthcare cost a small business
and their employees?
Short answer? A lot.
A typical employee’s individual policy ran almost $7,000
annually in 2018 and the average family premium exceeded $19,000 according to a
year-end report from the Kaiser Foundation, a non-profit organization focusing
on national health issues. These costs represent an increase of up to five
percent from the prior year (twice that of inflation) and 20 percent since
2008.
Not surprisingly, small employers are struggling to cope.
Many firms are just asking their employees to pay more – whether through increased
sharing of healthcare premiums (employees on average contributed about 28
percent to their employer’s premium in 2018, up from 26 percent in 2008) or by
paying higher deductibles.
The Kaiser report found that 85 percent of covered workers
are required to pay an annual deductible for single coverage and these
deductible amounts have increased by as much as 55 percent over the past five
years. In order to keep employer premiums under control, companies have also
been increasing the employee’s portion of co-payments for doctor and hospital
visits.
Rising healthcare costs are a big reason why only 47% of
firms with 3 to 9 workers offer healthcare coverage. The Affordable Care Act
requires companies with more than fifty full time equivalent employees to offer
affordable healthcare. But good companies – big and small - understand that
healthcare is a highly sought-after benefit and an important factor in hiring
talented employees in this low unemployment environment. The good news is that
the options for small firms to offer competitive plans are improving.
Health savings accounts
For example, many firms are taking advantage of Health
Savings Accounts, or HSAs. I liken them to a retirement plan… for healthcare.
That’s because as long as a company’s HSA plan is coupled with a high
deductible healthcare plan, both employers and employees can contribute as much
as $3,500 (individual) and $7,000 (family) per year -- pre-tax -- to the plan
and those amounts can be directed to investment accounts just like a 401(K)
retirement plan (employees 55 or over can put away an additional $1,000).
However, and different from a retirement plan, employees
can withdraw amounts every year to help pay for approved out of pocket medical
expenses. Assuming they qualify, most small employers choose to offer HSA’s
over Flexible Spending Accounts because -- among other factors -- HSAs offer
the ability to make higher contributions and to rollover any leftover amounts
to the next year.
Self-insurance
A growing number of small employers are dipping their toes
into self-insurance. That’s because many business owners are realizing that
when they’re paying a typical group insurance premium they’re paying for all
their employees’ healthcare expenses whether or not they’re using the benefits.
With a level funded or hybrid self-insurance plan, an
employer pays for an employee’s out of pocket health costs up until an agreed
on maximum and then a stop-loss insurance plan kicks in. Because the employer’s
taking some risk for these costs and only paying for those employees that are
needing the benefit their insurance rates, and overall expenditures, can be
much lower.
But be careful. Employers who take the self-insurance
route need to have a good handle on the demographics of their workforce and
also employ a competent administrator that understands the complexities behind
the funding levels calculated.
But this extra effort can result in significant annual
healthcare savings -- significant enough that, according to the latest data
analyzed by the Employee Benefit Research Institute, the number of employers
with less than 100 employees who offered at least one self-insured plan
increased from 14.2 percent in 2015 to 17.4 percent in 2016.
Association health plans
Finally, it may be possible to consider an Association
Health Plan. These plans, which were finalized by the Department of Labor in
2018 and went into effect in January, ostensibly allow businesses to form
associations, or buying groups, in order to purchase healthcare coverage from
insurance companies who can offer lower priced plans with fewer essential
benefits due to the size of their combined employee pool.
Unfortunately, the plans are hitting some roadblocks.
While many states have embraced the new ruling as a way for employers to reduce
their healthcare costs and offer more options to their workers, other states --
including Pennsylvania and New Jersey -- have joined in a lawsuit that
challenges the rule’s legality for overriding some of the 2010 Affordable Care
Act’s requirements.
"Pennsylvania has strict rules," says Jim Pitts,
a Philadelphia-based business development executive for risk management firm
USI Insurance Services. Pitts says that firms wanting to form an association in
this state are required to register as a Multiple Employer Welfare Association
and must file annual reports. These requirements, he says "have been a
concern with associations in the past."
Association Health Plans, however, may be a good option
for freelancers or very small businesses who belong to a professional
organization that offers the option nationally. My concern is that the ruling
could not only suffer legal defeat but also be easily overturned if a new
administration takes power in 2020.
Regardless, options are growing and innovative benefit
consultants are coming up with even more strategies for small businesses to
control their healthcare costs.
For example, Ed MacConnell’s firm, Total Benefit Solutions
which is located in Feasterville, PA, offers a variety of choices to its
clients, including plans that provide minimum essential require nets, fee-for
service or indemnity plans where both employees and employers have more control
over the healthcare professionals they visit and sharing ministry plans where
healthcare costs can be shared among individual members who have common ethical
or religious beliefs.
“There are more choices than ever for small businesses to
get a better grip on their benefit costs,” MacConnell says. “The right
healthcare plan can work for the right client when applied properly with the
right advice.”
Gene Marks is a certified public
accountant and the owner of Marks Group, a technology and financial management
consulting firm in Bala Cynwyd.
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