First Aid for Small Business Healthcare Costs

First Aid for Small Business Healthcare Costs

Small businesses are driven crazy by soaring employee health costs. These expenses have been shown to be their biggest headache and obstacle to growth.

Congress has moved closer to passing health care legislation to let small companies band together across state lines for discounts. President Bush endorsed the legislation again last week. But it's been debated for years without passage.

Small firms have taken it on the chin for years. Costs for employers with three to 199 workers jumped about 10% last year from 2004, higher than the 9% bump for those with 200 or more, says the Kaiser Family Foundation.

Many owners would be thrilled with increases in that range. In Atlanta, Dan Hansen was hit with a 25% boost this year for his five-employee marketing firm, Red House Global Brand Architects.

"It's absolutely ludicrous," he says.

Remedies for small-business owners to consider

Medical costs were cited as small businesses' No. 1 problem in a survey last month of 471 owners by the National Federation of Independent Business trade group. The costs have been the top worry since January 2003. How to tackle the problem:

Outsourcing

Many small firms are turning to professional employer organizations (PEOs).

Think of a PEO as an off-site personnel department. For an annual fee, often 2% to 7% of the dollar value of annual payroll, a PEO manages everything from recruiting and hiring to managing health benefits. They're a boon to small businesses, many of which don't need and can't afford a full-time human resources department. PEOs combine small employee groups into bigger "pools" to get buying clout.

PEOs started in the early 1980s in Texas and Florida, says the National Association of Professional Employer Organizations trade group. There are now about 700.

In Milwaukee, Steven Iverson hired a PEO a year ago for his Iverson Language Associates. The 18-worker company translates manuals and other documents into foreign languages for U.S. firms doing business abroad. Iverson's PEO, helped Iverson keep his rate increase to just 5% this year from 2005, far below the 20% bump he says he would have faced.

Wellness programs

In Waterford, Mich., north of Detroit, Marshall Goldsmith coaxed his 25 employees to get more healthy. The payoff: His new insurer boosted rates just 15% this year vs. a threatened 40% under his former carrier.

His Golde's Creations spends $127,500 a year on medical benefits; the company picks up the full tab. Golde's helps museums and private collectors buy, refurbish and ship antiques and other collectibles.

Golde's medical costs are high because his workers are older; their average age is about 55. Many, including Goldsmith, are overweight, he says. Plus, four were cigarette smokers.

Goldsmith offered $1,500 gift cards to employees who lost at least 20% of their weight. Smokers who quit for a year will get a paid weekend in Las Vegas.

Tax-friendly benefits

Consider two medical plans.

Health Reimbursement Arrangements (HRAs) are especially useful for the smallest businesses: Unincorporated mom-and-pops that employ only one or two workers, often a spouse, says the National Association for the Self-Employed. It's a trade group for very small businesses.

Here's how they work: A woman employing her husband agrees to reimburse him for his medical expenses. Those include premiums for a family policy that covers him and her.

Because she's using company money to reimburse him, the expense is a business cost deductible from her company income, resulting in a savings they wouldn't otherwise get.

Health Savings Accounts (HSAs) are catching on as a cost-saver for small employers after Congress created them three years ago as part of Medicare reform. They put the onus on employees to control their own health spending so they could save employers money.

They're also gaining favor among small employers offering medical benefits for the first time. Among small firms offering HSAs, 33% did not previously give benefits, says a survey out last month by America's Health Insurance Plans, an industry trade group.

HSAs are linked to a high-deductible health insurance policy and are used to pay current and future medical expenses. Workers and employers contribute money annually to the HSA: for 2006, a maximum $2,700 for single coverage; $5,450 for a family plan.

Extensis Can Help

Extensis has managed our clients Health Costs to WELL BELOW industry averages. Year after year, we work hand in hand with our clients to find the BEST solution for their employees, while keeping a tight reign on expenses. Extensis offers a broad array of Health Plans that can be mixed and matched to your Business and Employee needs, HRAs, HSAs, HMOs or PPOs.

For more information, go to www.extensisgroup.com, or call 888-473-6398.