The Health Care Headache: 10 Tips to Reduce The Cost of Health Care in a Small Business

To many small business owners and the self-employed, health care is a costly burden, and over the past few months this expense has only grown. But all is not lost. With some effort it is possible to have usable health coverage while keeping costs to a minimum.

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In the wake of the landmark health care legislation that made its through Congress last year, the cost of health care in the U.S. just keeps on rising, and this expense juggernaut is steamrolling countless small businesses along the way. Some business owners are reporting an increase in premiums as much as 30% to 40%. Unable to keep up with the financial burden of maintaining health coverage for their employees, many small businesses are being forced to consider dropping their health plans.

If you are a small business owner facing such a predicament, then take a look at the 10 tips below to reduce the cost of health care:

1. Do your research. Whether shopping for the lowest health insurance rates or looking up medical information, it pays to do your research when it comes to health care. There are several health care sites that are particularly important to small business owners and those who are self-employed. The two most important are eHealthInsurance and HealthCare.gov. eHealthInsurance helps you find and compare low-cost health plan providers, while HealthCare.gov is another very useful site that offers a wealth of information on how to get affordable health care and insurance coverage.

2. Join your spouse’s plan. An independent small business owner may have the option of employing his or her spouse. Certain medical expenses, such as premium costs, co-pays, and prescription drugs, can then be claimed as tax deductible under a health reimbursement arrangement (HRA).

3. Opt for a higher deductible or co-pay. By increasing the deductible amount or co-pay of your health plan, your monthly premiums will be lower, and the savings in monthly premiums could end up being more than what you spend out of your pocket. Keep in mind, however, that for this option to work you and your employees have to be healthy. You also need to make sure that the out-of-pocket expenses are small enough for you and your employees to handle.

4. Use a health savings account (HSA). An HSA is tax-free savings account designated for any medical expenses that fall below a health plan’s monthly deductible. Both employees and employers can contribute to the account, and it must be coupled with a qualifying high-deductible health plan. With this method, the policy holder gets the necessary insurance coverage, while the HSA provides the means to fund the additional out-of-pocket costs on a pretax basis. The money in HSA can be carried over from year to year, and it is portable- meaning employees can take their plans with them if they change jobs. In 2011, the maximum yearly HSA contribution for an individual is $3050, while those with a family can contribute up to $6150.

5. Offer a flexible spending account (FSA). A FSA allows you and your employees to set aside pretax dollars through a payroll deduction to pay for eligible medical expenses- usually those that aren’t covered by health insurance. Unlike the HSA, however, the funds in this account do not carry over. Payments for medical expenses with an FSA are made via a specialized debit card that costs about $1-$2 a month.

6. Maximize your tax breaks. If your business employs fewer than 25 employees, then you may qualify for the Small Business Health Care Tax Credit- which provides a credit of up to 35% of employer-paid health insurance premiums through 2013, and up to 50% starting in 2014. There are several requirements that must be fulfilled, however, to fully claim the credit. For more information, see the IRS website.

7. Encourage wellness. Seek free or low-cost advice on maintaining a healthy diet and following an exercise plan. Encourage your employees to attend wellness seminars and to avoid or reduce unhealthy habits, such as smoking. Take advantage of free health screenings at local clinics, hospitals or health fairs. In the end you will feel better, and that could mean fewer trips to the doctor.

8. Join a discount health benefits program. For a small fee, these programs offer savings on prescription drugs, dental visits and other health services by connecting members with affiliated doctors, dentists, and health centers. In this way, a health benefits program can fill in any gaps in coverage from your existing health insurance policy.

9. Enroll in a group health plan. Small group health insurance plans cover between two and 50 employees, and the larger your group, the lower your premiums will be. Small businesses with only a few employees and self-employed individuals have the option of creating a group purchasing alliance with other small businesses and individuals. You can locate a purchasing coalition on your state Department of Insurance (DOI) website. The National Association for Insurance Commissioners maintains a list of DOI websites as well as other useful health insurance information.

10. Take advantage of subsidies and free or low-cost services. For low-income individuals and households or those with a disability, there are many resources out there to help you get the health coverage you need while keeping the financial burden to a minimum. Here are a few options to consider: 

  • You may qualify for low-cost health insurance through a state or federal program such as Medicaid or Medicare.
  • Households that have children under the age of 19 may qualify for the State Children’s Health Insurance Program, or SCHIP. Families who earn too much to qualify for Medicaid may still qualify for SCHIP. For little or no cost, SCHIP covers doctor visits, immunizations, hospitalizations, and emergency room visits. For more information, check out the Insure Kids Now web site.
  • If you are having a hard time affording prescription medicine, then consider The Partnership for Prescription Assistance.
  • There are also numerous health care clinics and centers throughout the U.S. that provide health services which are either free or are based on a sliding scale (meaning you pay what you can afford). The HealthCare.gov site mentioned above maintains a list of such clinics.

In short, if you own a small business are looking for ways to reduce the cost of health care, then there are several options to consider. With a little effort, you can realize significant savings.

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