What Small-Business Owners Need to Know about Health Care Benefits
Offering comprehensive benefits to employees can help you attract, hire, and retain the best workers. Yet many small-business owners believe that health care insurance is a luxury they can’t afford. The good news: Thanks to new incentives, tax credits, industry reform, and nontraditional plans, health care insurance may be within reach.
Here are a few things small-business owners should know about providing health care insurance:
- Reform is in the offing. Small businesses pay some 18 percent more than their larger counterparts for the same health insurance policy, but the federal government is working to change this. On March 23, 2010, The Patient Protection and Affordable Care Act, nicknamed Obamacare, was signed into law by the president. Most of its changes are scheduled to take effect by 2014. The upshot: Through incentives, tax credits, and affordable insurance exchanges, the cost of providing health care coverage to workers will become more affordable for small-business owners.
- Tax credits can offset your costs. One of the most notable changes — and benefits — of health care reform for small businesses is the Small Business Health Care Tax Credit. According to the U.S. Department of Health and Human Services, nearly 4 million small businesses can take advantage of this tax credit when providing health insurance benefits to their workers. The first phase of the tax credit entitles businesses with fewer than 25 employees (that meet certain requirements) to a credit of up to 35 percent to offset the cost of providing insurance. In 2014, this tax credit will increase to 50 percent. To determine whether you’re eligible, speak with a tax adviser, refer to the IRS’s coverage, or read this post.
- Alternatives to traditional coverage exist. Once upon a time, small businesses could only offer health insurance plans to employees through either a preferred provider organization (PPO) or health maintenance organization (HMO). Although these types of insurance plans still exist, today you have other options, too. These include allowing employees to set aside pre-tax dollars to pay for their medical expenses through a health reimbursement arrangement (HRA) or a health savings account (HSA). An HSA is tied to an insurance plan (typically one with a high deductible); an HRA isn’t. Both HSAs and HRAs offer tax advantages to small-business owners and their employees, which can lower the cost of health insurance.
- Consumer-directed health plans are increasing in popularity. CDHPs were the only type of health insurance plan to experience enrollment growth in 2010, according to a survey conducted by Mercer, a global human resources consultant. These self-funded plans, in which employers and employees pay into an account instead of sending premiums to an insurance company, are based on the premise that not everyone will use all of the traditional health insurance plan dollars that have been allocated. In 2011, 18 percent of small businesses are expected to offer CDHPs. Another benefit of CDHPs: Enrollees are more likely to participate in wellness programs and demonstrate both cost-cutting and health-conscious behaviors when they play a more direct role in budgeting.