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Small Business Employee Benefits and HR Blog

Small Business Life Hack - Controlling Health Benefit Costs

August 31, 2015
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LifeHackWhat if your small business was able to offer health benefits without worrying about controlling costs year after year? It sounds too good to be true, right?

After all, a recent survey found that 90 percent of employers are bracing for health plan increases this year, many in the double digits, and that employers' number one operating challenge is the cost of benefits.

So, what can business owners do to get health benefit costs under control?

A Life Hack for Controlling Health Benefits Costs

There are several different cost containment strategies employers utilize to control health benefits costs. For example, common strategies include:

  • Cost-shifting to employees
  • Changing health plans or carriers
  • Limiting provider or pharmacy networks
  • Changing funding structure 

As the cost of healthcare continues to grow, however, employers (especially smaller employers) are considering new approaches to cost containment. Which leads us to our life hack to control health benefits: employer-funded individual health insurance.

Employer-funded individual health insurance is a life hack your business can use right now to:

  • Start offering health benefits for the first time, or 

  • Save on health benefit costs and control costs on an annual basis. 

With employer-funded individual health insurance, you can give employees a monthly health insurance allowance to spend on their own personal health insurance policy. On the individual market, health plans are much less expensive than group coverage. And, eligible employees can access health insurance tax credits.

Structuring Employer-Funded Individual Health Insurance

Employer-funded individual health insurance is a health benefits strategy. It is an arrangement where you reimburse employees’ individual health insurance premiums  - instead of offering a traditional group health insurance policy. With this type of approach, your business:

  • Sets any amount to contribute to employees' health insurance,

  • Gives employees tax-free health care allowances using health reimbursement software, and

  • Reimburses employees on payroll for approved premium expenses.

Most businesses utilize a limited-purpose Section 105 medical reimbursement plan as the foundation for their health benefit. The Section 105 plan is the vehicle to provide the health insurance allowances. By using a Section 105 plan, you stay compliant with ACA, IRS, ERISA, and HIPAA regulations. In fact, a Section 105 plan is one of the only compliant ways a business can reimburse employees for personal health insurance premiums. To ensure compliance and easy administration, businesses use a health reimbursement software provider to set up and administer the Section 105 plan.

Why This Life Hack Controls Health Benefits Costs

Being able to set, control, and predict all health care costs is revolutionary for many small businesses. After all, the number one reason small businesses don't offer health insurance (but want to) is cost.

With employer-funded individual health insurance your financial liability is controllable. Here's how this type of health benefits program accomplishes cost controls.

First, if you want to contribution any amount to employees' health care costs you can afford employer-funded individual health insurance. That's because your business sets how much to provide to employees, and there are no annual renewal increases or minimum contribution amounts. Because of this, the business controls 100 percent of health benefit costs.

Second, all contributions are notional until your business reimburses employees. Employees purchase individual health insurance policies and submit their premium expense for reimbursement. Your business reimburses employees directly on payroll. Pre-funding of third party bank accounts is not required, and your business only reimburses employees for eligible premiums, up to the amount of their healthcare balance.

Lastly, if an employee leaves your business, any unused allowance amounts stay with your business.

Conclusion

Controlling health benefits cost is a major challenge for small and large employers, alike. Employer-funded individual health insurance offers small businesses an effective life hack to get health benefits costs under control - once and for all.

What are your tips for using employer-funded individual health insurance to control costs? Leave a comment below.

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