Affording benefits Featured

6:54am EDT November 30, 2004
If you're a small business owner, it's a good bet you have direct involvement in the purchase of health coverage for your employees.

You're also probably spending more time than ever trying to figure out how to offer competitive health benefits without doing significant damage to your bottom line. And you're faced with an even tougher decision -- can I continue to offer health benefits at all next year? Costs are clearly out of control.

Small business owners surveyed by the National Federation for Independent Business put the cost of health insurance at the top of their list of most critical problems facing small business. And the Kaiser Family Foundation reports the number of small employers (companies with three to 199 employees) offering health coverage declined from 68 percent to 63 percent over the last three years.

That means an additional 5 million workers are without health insurance.

Your company doesn't have to be part of that growing number. By applying some simple strategies, you can not only continue offering health benefits to your employees, but can do so in a way that's less disruptive to the financial health of your company.

Here are some of the key components that can help you get the most from your health benefits budget.

* Choice. One size does not fit all. Employees have different needs. Some want comprehensive coverage and are willing to pay for it. Others would rather pay less in exchange for a higher deductible before traditional PPO coverage kicks in. If you're funding full coverage for these employees, it may be more than they need or want.

Some insurers will let small employers offer two, three or more health plans side-by-side. That way, employees choose the level of coverage that's right for them. You don't pay for more than your workers need, and more of your employees may elect coverage -- which can help keep health benefits affordable.

* Consumer engagement. Consumers are the most promising players to contain health care costs. Many believe the total cost of a visit to the doctor's office is their $20 co-pay. But when people are spending a meaningful share of their own money and are given information to do it wisely, they will be much better at controlling spending for themselves and for your company.

Consider plans that give consumers responsibility, such as those with a front-end spending account. As consumers spend the account on health care services, they have good reason to investigate the true costs of care and an incentive to make cost-conscious decisions.

* Tax advantages. Employers can use tax-advantaged spending accounts to help manage the cost of health benefits. Health Savings Accounts (HSAs) allow employees to save money for medical expenses and invest in the account on a tax-deferred basis, with the employer, employee or both contributing. HSAs are typically paired with a high-deductible health plan, offering premium savings, and are portable, so employees can take the account with them from job to job.

In a Health Reimbursement Arrangement (HRA), the employer contributes to a health care account on a pretax basis, and employees use the money to pay for qualified medical expenses. Employers can realize premium savings by combining the HRA with a high-deductible health plan, and employers need not fund the entire account at once, which helps cash flow.

One challenge can be the administrative work in setting up the account, so look for an insurer that offers the HRA and health plan in one easy-to-administer package.

Lastly, employees can save pretax money for health expenses in a Flexible Spending Account (FSA). The downside is that the account does not roll over from year to year, meaning employees must use it or lose it.

Purchasing health insurance can be complex, so it helps to have a trusted adviser. Seek out an independent insurance agent or broker, someone who knows the local market and can help you compare plans and features.

No one should minimize the challenge facing small businesses when it comes to health benefits, but with careful planning and sound strategies, manageable health benefits might be closer than you think.

Alan Guzzino is the president of Humana's Atlanta, North Carolina and South Carolina market health plan operations and is responsible for the management, strategic planning and growth of those markets. Guzzino, an eight-year veteran of Humana, serves on the board of the Georgia Association of Health Plans. Reach him at