04/ 15/ 2004
by Mardy Fones
As a small business owner, you don't have time to become an expert on health insurance. And because companies with 50 or fewer employees are subject to a wide range of legislated mandates, finding cost-effective health coverage is challenging.
Yet there are options available that could lower your ever-increasing costs. Since every business is unique, check with your financial advisor or insurance agent before making a final choice:
AHP--Association Health Plan
AHPs would allow small business owners to band together across state lines through their membership in a bona fide trade or professional association to purchase health coverage for their families and employees.
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Pros: Would lower the cost of health care for small business by an estimated 15 to 30 percent. Would make health care coverage more accessible and affordable for small business owners. Would allow more employers to provide coverage for their themselves and their employees. Currently more than 60 percent of America's uninsured are small business owners and their families or the employees of a small business. Access to affordable health care would allow small businesses to compete for employees with larger companies that have extensive benefits packages. Having one set of federal regulations rather than complex rules set by each state would save tremendously in administrative costs. Would offer maximum flexibility to design benefit plans which meet working families' needs.
Con: Not yet available on a federal level. Legislation under consideration in Congress. Though AHPs are allowed in some states, ERISA does not currently preempt state regulations for AHPs, forcing AHPs to follow the varied regulations from state to state. As state regulations have tightened over the past decade, they have made running an AHP across state lines an administrative nightmare.
HRA--Health Reimbursement Arrangement
Employers create health care spending accounts for employees to use to pay for health care services. When those dollars are gone, high-deductible health insurance begins.
Pro: Money isn't deposited in HRA account until there is a medical claim. Employees tend to be more frugal about health care spending. Available to smallest businesses.
Con: Money remaining at the end of year rolls over, but belongs to employer. Since employers keep the money if HRA is canceled, employees can consider it a "golden handcuff." Higher administrative costs than MSAs.
MSA--Medical Savings Account
Combines high-deductible insurance with a savings plan similar to IRAs.
Pro:Contributions are federal-income-tax deductible. Withdrawals for out-of-pocket medical expenses are tax-free. Investment grows tax-deferred.
Con:Unless Congress repeals current law, MSAs will expire at end of 2003. Withdrawals for non-medical expenses taxed as ordinary income.
FSA--Flexible Spending Account
Allows employees to set aside pre-tax dollars to pay for IRS-allowed medical, daycare or adoption expenses.
Pro:Lowers taxable income.
Con: Money must be spent in the current year. Tendency to underfund, since it's difficult to predict medical costs.
This article originally appeared in the April/May 2003 issue of MyBusiness magazine.
