By Kylie Jane Wakefield
The Affordable Care Act (also known as “Obamacare”) requires only businesses with 50 or more full-time employees to provide health insurance — meaning many small businesses are exempt from any health care mandates. But health care for small business staff is a vital consideration for any small business owner. And while it’s important to keep costs low, finding a plan that also satisfies and fulfills the needs of employees is crucial, too.
Forbes drives home the point that health care plans contribute to the success of a business: “When employees feel good, they work better, and the less time that they are out of the office due to illness, the more profitable the company will be.”
Under the new health care law, businesses with fewer than 25 employees may be eligible for a tax credit of up to 35% of their contributions to employee plans (after 2014, that credit can rise to as much as 50%). Employers will need to look at new plans and products coming out, such as HSA, consumer driven and cost sharing plans, and ask employees to participate in the process of finding suitable plans.
Let’s take a look at the types of plans out there for small business owners in the United States.
Health Savings Account (HSA)
According to Fox Business, small businesses are increasingly turning to HSA accounts for employees because they save money. The accounts are managed by individual employees and “are an alternate source of medical funds that can be used to pay for qualified medical expenses.”
Essentially, under HSAs, the insured parties must pay the deductibles before the companies cover any medical costs, reports Money Crashers. However, the trade-off is a lower premium. The minimum deductible for one person is $1,200 and $2,400 for families.
Fox Business notes that since employees at small businesses are shopping around for the best HSA plans, they become more proactive about expenses and their own health. Instead of automatically enrolling in the highest-cost health care through an employer, workers are forced to keep costs low.
Health Reimbursement Arrangement (HRA)
A survey from Aon Hewitt found that consumer-driven health plans (CDHPs) are now the second-most popular health care plan provided by employers in America. Included in CDHPs are HSAs, along with HRAs, or health reimbursement agreements.
According to Intuit, an HRA “is a tax-advantaged, employer-funded medical reimbursement plan that allows both employees and employers to save on the cost of health care.” The employer allots a fixed amount of money (which is tax-deductible) for annual health care expenses. If an employee incurs medical expenses not covered by a standard health care plan, the employer reimburses them. “[I]t provides a very flexible type of employee benefits plan,” Intuit reports. “Based on the plan’s design, HRAs can generate significant savings in overall health benefits.”
Blogger Tony Novak points out that unlike HSAs, HRAs do not require users to have insurance already. There are more options available through HRAs rather than group insurance plans, and the employer completely controls the cost of them. It also gives the employees more choices and doesn’t require them to set up separate accounts to fund their plans. Plans are available in every single state and are easy to understand. After a company transitions from a fully insured health plan, Novak writes that costs will be “between 10% and 30% of the previous year’s expenses.”
HMOs (Health Maintenance Organization)
Employers who provide HMOs are allowing their employees to receive the most benefits when compared to preferred provider organization (PPO) and point of service (POS) plans. But, according to Chron, these plans carry the most restrictions. Employees that are offered HMOs must use a primary care physician, go to in-network doctors, and receive referrals. Otherwise, they won’t be covered for medical costs.
Small businesses looking to pay lower premiums, provide preventive care services, and avoid paying deductibles should look into HMOs. Co-payments are low as well; for example, a doctor’s visit may only be $20. HMOs fall under the umbrella of group health insurance, which is the most popular way that employers provide health care benefits.
Small business employers need to weigh the pros and cons of each type of plan, whether it’s HMO, HSA, HRA or an alternative. Whether it’s low co-payments and premiums that an employer is seeking, or high deductibles and increased employee responsibility, it’s always advisable to look into every single option.
In 2014, the marketplace will become even more diversified. Health care exchanges, which, according to USA Today, will be either state or federally mandated and include Small Business Health Options Programs, will help employers shop around for the best rates. Each of these private plans available for purchase will, at the very least, provide benefits for prescription drugs, basic, and comprehensive medical coverage.
It’s a pivotal time in America in terms of health care coverage. Small business employers need to remember that they do have a wide variety of choices.
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