These are challenging times for many small businesses, who are tightening their belts and trying to improve efficiencies in order to ride out the storm. This is coupled with a lot of uncertainty regarding potentially increasing tax and regulatory burdens from Washington. The “health reform” act passed earlier this year is certainly the source of a lot of nervousness as well. While most of the major provisions of this bill won’t go into effect until 2014, the effects will be felt sooner as premiums continue to go up. (Politics aside, please believe that this bill will result in higher premiums rather than lower ones).
With that in mind, I want to make a few suggestions to small business owners for how you can save money on your premiums while still taking care of our team:
* Raise your deductible. This is obvious to most people, but bears mentioning here. This is, quite obviously, the simplest way to lower your premiums while providing good major medical/catastrophic benefits to your employees. We could then offer them, on an individual basis, the opportunity to purchase critical illness insurance and/or a supplemental accident plan, which are inexpensive ways to supplement that higher deductible.
* Consider HSAs. I’ve written about HSA plan elsewhere, and still believe that these plans are superior to traditional health insurance plans for most people.
* Consider HRAs. The “health reimbursement arrangement” allows an employer to reimburse employees for covered health expenses. The employer has a tremendous amount of flexibility regarding what kind of costs will be reimbursed and can determine how much is available. These plans complement a high deductible health plan (with our without HSAs) very well. From an employer’s perspective, another advantage here is that you won’t actually pay the money unless there is a claim.
* Consider a “Gap Plan.” A “Gap Plan” is a useful complement to a high deductible health plan that can give you a comparable level of coverage for a lower premium. For example, let’s say you put a major medical health insurance plan in place with a $7500 deductible. You then establish a “gap plan” that provides, say, $6,000 in benefits. The result is that your only real exposure is $1500 (the difference between the two), which is pretty similar to a traditional health insurance plan. But it’s a lot cheaper.
* Consider a “Defined Contribution” plan. Here we don’t set up a group health insurance plan at all. We establish individual health insurance plans for each employee, and a reimbursement arrangement that allows you as an employer to choose how much you’d like to contribute to the premium. This approach has one major shortcoming: Individual plans are individually underwritten, and an employee could be denied coverage or have pre-existing conditions excluded. For that reason we don’t recommend you replace your group coverage with a defined contribution plan. If you’re not offering any health insurance, however, this might be something to consider.