Every person needs health insurance. Your employees need health insurance. The primary means by which Americans obtain health insurance is their employer. Fail to offer it to your employees and you will fail to attract and retain the best talent. That’s a problem. It takes great people to build a great business.
Can’t afford it? It’s too complex?
How did a can-do self-starter like you adopt such a defeatist attitude on this issue? Attracting and retaining talented employees is one of the most important yet difficult challenges for many business owners. Get over your health care funk and you’ll do yourself, your business and your employees a great deal of good.
New laws require health insurance carriers to accept groups as small as two persons. Some carriers even accept groups of one! Laws also place caps on the rates that can be charged to small and high risk groups.
The No-Brainer: Accept the Government’s Willingness to Help Your Employees.
Every business can … at the very least … allow the government to pay a part of employee health care costs. Health insurance is a deductible business expense. If you don’t offer health insurance and your employees must obtain insurance on their own, they’ll have to pay for their health insurance with after-tax dollars. This is ridiculous. A substantial penalty for working for your firm.
At the very least, arrange a group plan for your employees, pay the premiums and reduce employee salary by the same amount. Everybody wins. Your employees get health insurance at a 40% discount (pre-tax) and you both avoid payroll taxes on the portion of salary that is applied towards payment of the health insurance premiums. Did you follow that? Your net expenses
Example: Your employee is paid $30,000 with no benefits. With payroll expenses she costs you $34,500. Her take home pay is $23,000 after she pays her portion of payroll expenses and state and federal income taxes. She then buys health insurance for $5,000 per year so her net take-home is $18,000. Why don’t you give her the choice of the $30,000 salary or a $25,000 salary and health insurance paid by you? She’ll pay all co-pays and deductibles, but you pay the premiums. Your total compensation costs actually decline to $33,000 and her net take home rises to $22,000. Everybody wins when you let the government help!
The New Health Savings Account (HSA): A Breakthrough for Small Businesses and their Employees.
Federal legislation created the individual Health Savings Account (HSA) in 2003. The HSA account works like an IRA and is set up by and for the individual/employee. Employee compensation can be directed to the account, free from income and payroll taxes. Amounts in the account accrue tax free and may be withdrawn (tax free) to pay for medical expenses including health insurance premiums.
The new HSA legislation replaces the Medical Savings Account (MSA). No matter, HSA is superior in many ways to both the now obsolete MSA and the still existing Flexible Spending Account (FSA). For example, the HSA is simple to set up and requires no IRS filing. Contributions may be made by employer, employee, or both. Moneys left over at year end are simply rolled to the next year and the employee takes the account with her when she changes jobs.
What’s the Catch?
An HSA account may only be used by an employee who is covered by a high deductible health plan (HDHP). A HDHP is simply a health insurance plan that requires the employee pay a higher amount before the health carrier begins to pay. Under such a plan, premiums are lower. Not a bad “catch” at all. A basic, lower cost plan such as this will allow the employer to offer health insurance to its employees on a pre-tax basis and at a lower cost to the employer.
Many Small Companies Don’t Provide Health Benefits. Why Should You?
Who was it that said “good is the enemy of great”? Most small businesses don’t offer health insurance. Is this a green light to be just like them or an opportunity to be a cut above?
What level of benefits would it take to be a cut above? First, when you are competing for a new employee, listen to what they say about offers from other employers. If you lose a valued employee, find out exactly why. Did benefits play a role? There are also more objective sources of data. For example, the National Association of Health Underwriters (NAHU) conducts studies of health insurance benefits trends by geographic location and industry. Contact them at www.nahu.org.
Note:
When making decisions relating to health care benefits, and other benefits such as 401k and retirement plans, the employer needs to be aware of the Employment Retirement Income Security Act (“ERISA”), a federal law governing employer sponsored benefit plans. ERISA will be addressed extensively in an upcoming issue of The Business Owner.
The following health insurance experts generously contributed their expertise to this article series:
- Dale Bresee and Diane Stallcup of Henderson Benefits Group, Mr. Bresee can be reached at dale.bresee@GoHenderson.com
- Stuart K. Hawley, president of The Hawley Group, Inc. Mr. Hawley can be reached at Stuart@thehawleygroup.com
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2012.
This publication is intended to provide general information on the subject matters covered. It is sold and distributed with the understanding that neither the publisher nor any distributor or advertiser is engaged in providing legal, tax, insurance, investment or other professional advice. The advice of a qualified professional should be sought before any reader applies a concept presented herein to his or her particular situation or business.
D.L. Perkins, LLC is solely responsible for this content.
