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Thayer Partners Blog

How Business Owners Can Get Affordable Health Insurance for Employees

[fa icon="calendar"] Jan 8, 2016 9:00:00 AM / by Chris Wilmerding

Chris Wilmerding

How_Business_Owners_Can_Get_Affordable_Health_Insurance_for_Employees.jpgMany business owners experience double digit health insurance increases every year with no visible means of reducing their second largest business expense. However, there is such a thing as affordable health insurance that is easy to manage and maintain. It’s possible to offer health insurance without hurting your bottom line.

You can ditch the expensive traditional fully-funded plan design and instead choose between two popular middle-ground alternatives. Self-funded healthcare plans and Health Savings Accounts are excellent options for employers who are seeking affordable health insurance for their employees.

Here’s what you need to know about each plan.

Self-Funded Healthcare Plan

With a self-funded healthcare plan, you can fire your current insurance company and cut your health insurance costs while still meeting your employee healthcare needs. Employers with self-funded health plans gain significant financial benefits, insight into the claims that are incurred (on a depersonalized basis), and the power to customize the plan design and benefits to better meet their goals and the needs of employees. And, from the employees’ perspective, the experience is seamless—they receive a health plan card with a major insurance company’s name on it that they can use at almost all hospitals and doctor offices nationwide just as they do with the current insurance company.

Here’s how it works: you set premium rates for the benefits that you want based on your claims history, and then set up a reserve account for employee claims funded by a monthly health insurance payment. The money stays in the account, collecting interest, until an employee makes a claim. If the claims are lower than your premium, your company gets to keep the extra cash or it can apply the credit to the next monthly payment. This is different from a traditional benefits plan design, where you wouldn’t get reimbursed for lower-than-expected claims. And in the event that claims are higher than your pre-set amount, your stop-loss insurance carrier picks up the tab from dollar one above the limit set. Furthermore, because you’re only paying for claims as they come in—rather than paying the insurance company up front—you can optimize your cash flow.

To make managing this affordable health insurance option easier and simpler, you probably should use a third-party administrator to oversee the plan. The costs of using a third-party administrator are typically lower than those offered by insurance companies.

The costs you’ll pay for a self-funded healthcare plan depend on the benefits you choose to offer and the number of employees who will be enrolled. You’ll set fixed claims costs for each employee, although the actual costs might end up being higher or lower, depending on your employees’ healthcare needs.

Small, mid-sized, and large companies—any company with 25 employees or more—can all take advantage of the cost savings and flexibility offered by self-funded plans.

Health Savings Account

The second option you should consider if you’re looking to offer affordable health insurance to your employees is to implement a high deductible health plan paired with a Health Savings Account. This is a popular way to reduce health insurance costs because you are not asking the insurance companies to insure your employees for every minor health even. Imagine how expensive your car insurance would be if you had a $100 deductible. The car insurance folks would be paying for every fender bender and scratch. The same principal applies to health insurance. High deductibles equal lower premiums.

With a Health Savings Account, the employer and or employee can contribute pre-tax money that can be used on eligible health expenses (and even dental expenses). The difference with this plan is that your employees can choose which eligible health expenses to pay using their HSA. They can spend them all on dental, they can spread the credits out evenly over several health categories, or they can focus on just two or three categories. A Health Savings Account offers your employees flexibility by allowing them to use their funds at their discretion on eligible funds. There are no caps per healthcare category—only the total annual amount. Better yet, if they have a healthy year and do not spend the balance in your HSA, you can save these funds for future health expenses.

Offering a Health Savings Account can help you to attract and retain employees and produce a happier and healthier workforce, all the while keeping a lid on health insurance expense.

You Have Options

When it comes to offering your employees affordable health insurance, you have options. You don’t need to choose between offering a traditional plan or nothing at all. Self-funded healthcare plans and Health Savings Accounts are great alternatives that will allow you to maintain the same quality of health care and dental benefits without breaking the bank.

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Topics: Health Insurance

Chris Wilmerding

Written by Chris Wilmerding

Chris Wilmerding is Principal of Thayer Partners, an independent investment management firm located in Westwood, MA providing financial planning and wealth management counsel to individuals and their families.

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