Insurance

Five ways you can reduce your company's insurance costs
 
Published Thursday, June 21, 2007 9:00 am

by Roger Kalina



Inflation may be under control, but the cost of health insurance premiums is not. Last year marked the fifth consecutive year of double-digit increases in health insurance premiums. Only two-thirds of small employers are able to offer their employees health care compared to 97% of large employers. Although health care reform remains a hot topic in the nation's capital, it is unlikely that any relief for employers will be forthcoming soon. So what can you do? If you haven't yet implemented a health care program at your company, don't wait on legislation. There are affordable solutions that will help with employee retention. If you already have a plan in place, review the current alternatives to traditional health insurance programs.

Here are five common methods for reducing costs at the corporate level.

1. Health Maintenance Organizations (HMOs): An HMO is a type of managed care organization. Unlike traditional indemnity insurance, the HMO is built around an established network of providers on a cost-effective basis.

In addition to discounted contracts with select providers, HMOs seek to manage health care and reduce unnecessary services. To achieve this, most HMOs require members to select a primary care physician. Note: There are numerous variations of this basic model, such as Preferred Provider Organizations (PPOs).

2. Premium Only Plans (POPs): By using a POP -- a cafeteria-style plan authorized under Section 125 of the tax code -- the employees pay a portion of the group health insurance premiums through regular payroll withholding. Since employees are paying for coverage with pretax dollars, this reduces their overall tax liability. Similarly, the contributions made by the employees reduce the FICA tax owed by the employer.

The plan must have a written document and cannot discriminate in favor of highly compensated employees. Furthermore, the tax-free benefits provided to key employees under the POP cannot exceed 25% of the tax-free benefits provided to all employees.

3. Flexible Spending Arrangements (FSAs): With FSAs, each employee may elect to withhold an amount to be contributed to his or her personal account. The FSA is then used to pay qualified health care costs -- including the employee's deductibles and co-insurance amounts -- with pretax dollars.

However, there is a potential downside for employees: Under the "use-it-or-lose-it" rule, any FSA amounts not withdrawn for medical expenses at the end of the plan year revert to the employer. Consolation: A company is now permitted to use a 2½-month "grace period" at the end of the year.

4. Health Savings Accounts (HSAs): The HSA works like an IRA used to pay for medical expenses. Contributions to the HSA are tax deductible and accumulate in the account without any current tax erosion. It must be set up in conjunction with a high deductible health insurance plan. Furthermore, distributions are tax-free as long as the funds are used to pay for qualified medical expenses. Unlike an FSA, funds in the account may be carried over from year to year. For more information about HSAs, read our HSA FAQ online.

The Tax Relief and Health Care Act of 2006 includes several enhancements for HSAs. Give us a call for more details.

5. Health Reimbursement Arrangements (HRAs): With an HRA, an individual health care reimbursement account is established with a fixed annual amount for each eligible employee. The basic concept is similar to FSAs with two significant differences:

  1. While an FSA is funded with an employee's pretax dollars, an HRA is funded solely with an employer's deductible contributions.
  2. Funds in the account that are not spent by the end of the year can be carried over, so there is no "use-it-or-lose-it" feature.

By combining an HRA with a high-deductible health insurance plan, an employer can spend less money overall than with a traditional insurance plan for employees.

These are just several possibilities to consider. A comprehensive investigation of all the potential options is recommended. Call us today to schedule a consultation.

 

Roger Kalina, CFP®, ChFC, CLU is the founder of Benchmark Financial Group, LLC. He has served as a financial professional for over 13 years and has achieved the professional designations of CFP® (Certified Financial Planner), ChFC (Chartered Financial Consultant) and CLU (Chartered Life Underwriter). Although Roger's primary focus is on risk management and wealth transfer issues for his clients, he also assists family owned, emerging and high growth companies with employee benefits and business succession planning.

PPG-36153 (6/06)

CFP and CERTIFIED FINANCIAL PLANNER are certification marks owned by the Certified Financial Planner Board of Standards, Inc. These marks are awarded to individuals who successfully complete the CFP Board's initial and ongoing certification requirements. Chartered Financial Consultant (ChFC) and Chartered Life Underwriter (CLU) are professional designations of the American College .


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