Employee Health Care Remains in Reach for Small Businesses

Health care was once almost a routine employee perk. But as costs have spiraled over the years, businesses of all sizes have cut back on their coverage or increased the employee’s contribution; some have eliminate the benefit altogether.

According to the U.S. Department of Health and Human Services (HHS), less than half of U.S. businesses with fewer than ten employees offer health insurance. Only 15 percent of companies with 25 to 100 workers do. But as competition for talented employees intensifies in the coming years, small businesses will have to find ways to lure good workers, and keep the ones they already have. And health coverage may well be an important bargaining chip.

One solution is to take advantage of high-deductible health insurance plan (HDHP) with a health savings account (HSA).

Less costly than conventional plans, HDHPs cover major health and medical expenses for those who can afford some up-front medical costs. Participants have the option to open and make pre-tax contributions to an HSA. Withdrawals are tax-free when spent on qualified medical expenses. Unspent HSA funds carry over, so the accounts have the potential to accumulate significant balances over time.

What’s more, employer contributions to a tax-favored HSA are exempt from payroll taxes, though the employee retains full control over the account. As a result, premiums can be 40 percent lower in a high-deductible HSA-qualified health insurance plan than those in a conventional co-pay plan

More than 13.5 million already utilize HSAs, which are largely unaffected by the Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Tax Credits Reconciliation Act. Expenses incurred for over-the-counter (OTC) medications without a prescription are no longer eligible for payment or reimbursement from an HAS, and the penalty on account withdrawals no use for qualified medical expenses has increased from 10 percent to 20 percent.

However, the Act will change rules for HDHPs in the coming years, and employers should monitor sites such as HHS’s HealthCare.gov for news and detailed information.

The National Association of Health Underwriters (www.nahu.org) has a helpful HSA section on its Website with basic information on how HSAs work, insurance firms offering these plans and assistance with finding an agent. Firms also have the option of setting up their own plans, and arranging for employee HSAs.

To learn more about human resources issues facing your small business, contact Raleigh SCORE, “Mentors to America’s Small Business.” We can be reached at 919-856-4739 or if you’d like to make an appointment to talk with our counselors, go to our website, http://raleigh.score.org and request a meeting.