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June 10, 2009

Get Affordable Health Coverage with HSAs

This article is provided by the Greater Scranton Area SCORE Chapter.

As your small business grows, you may want to offer some type of health plan to protect your own family, as well as keep good employees. But the cost of medical insurance coverage for small business has skyrocketed in recent years, and affordability has become a major problem.

Between 2001 and 2005, group health premiums increased by double-digits each year, with the largest increases hitting small business, according to research by the National Federation of Independent Business (NFIB). And the prognosis for ending the cost crunch is poor.

Business owners squeezed by premium increases cite the rising cost of health insurance as a top concern. They know that workers value their medical coverage. But as owners they feel trapped, and must either pass along rate hikes or cut benefits entirely.

A health plan option first introduced in 2004 offers some measure of hope. Health Savings Accounts, or HSAs, work in IRA-like fashion to cover out-of-pocket medical costs with tax-sheltered money. An HSA is an investment account funded by each individual, with optional contributions from your business. The accounts must be linked to an insurance plan that has a high deductible of, say, $1,000 to $2,500 or more. Money from the HSA pays health expenses until the insurance kicks in.

Unspent funds carry over, so the accounts have the potential to accumulate significant balances over years of untaxed contributions and investment gains. And premiums on health plans with high deductibles are more affordable. Employer contributions to a tax-favored HSA are exempt from payroll taxes, and the employee is not taxed either.

As medical costs soar, HSAs have become more popular among small businesses.  Plan features include these:

1) The annual contribution limit to an HSA matches the deductible on your health insurance, up to $2,600 for an individual, and $5,150 for family coverage. Amounts are adjusted annually to inflation.
2) The employer, individual or both can make contributions and each individual has control over the assets in their account.
3) Plan providers will generally be insurance companies or banks. If your business sets up the plan you will arrange for employee HSAs.
4) To be eligible, an individual must be covered by a high-deductible health plan and must not be covered by other health insurance.

The National Association of Health Underwriters, www.nahu.org, has a helpful HSA section on its Web site with basic information on how HSAs work, insurance firms offering plans and how to find an agent.

To learn more about human resources issues facing your small business, contact SCORE “Counselors to America’s Small Business.”  SCORE is a nonprofit organization of more than 10,500 volunteer business counselors who provide free, confidential business counseling and training workshops to small business owners.  Call (570) 851.1608 or visit www.scorescranton.org to contact the Greater Scranton Area SCORE Chapter.