Small Shops Look for Smaller Health Insurance Prices
Tax Credit Widens Health Insurance Options for Small Businesses
We're doing it for our clients to save money. It will typically save them 20 percent or more on their premium.
— Lonnie Klene, Houston-area independent health insurance broker
The health care industry that Americans are so accustomed to has been a point of contention among politicos and pundits for decades, leaving the general populace to swim through the convoluted labyrinth without truly understanding the issue at hand. Even as debate swirled amid the 2008 presidential campaign, the electorate was simultaneously foaming at the mouth and scratching its head. Political debates aside and opinions on 2010's massive health care reform notwithstanding, one thing has always been certain: Health insurance is infamously expensive for small businesses. To afford basic coverage, recession-strapped small shops are passing on more health care expenses, while trying to make the shift palatable to employees. But the offset for reducing premiums has to come from somewhere -- a line small businesses tiptoe.
Small Groups Seek Solutions
Health care reform might bring some relief to Houston-area small businesses that are struggling to provide coverage for their employees. From 2010 to 2013, qualifying small businesses with 10 or fewer employees can receive a 35 percent tax credit on health insurance costs, while businesses with 11 to 25 workers can receive a partial credit.
Time will tell if this is enough to cut into the blight on the small-business health insurance record. Only 34.2 percent of small businesses in Texas offered insurance in 2009, according to U.S. census information compiled by the Henry J. Kaiser Family Foundation. This compares with 94 percent of companies with 50 or more employees. The national average for "small groups"---businesses with 50 or fewer employees---was 41 percent. By comparison, 96.2 percent of large firms offered insurance. Even with higher deductibles, tax credits or a combination of both, something else has to give to change those numbers.
Tailoring Coverage with Tax-Free Accounts
Lonnie Klene, an independent health insurance broker in the Houston area who partners with Core Benefits, said many of her clients save money by offering a high-deductible health plan (HDHP) along with a health reimbursement arrangement (HRA). With premium increases in the 20-percent range during the first half of 2010---compared to 10 to 15 percent in 2009---Klene said the HDHP/HRA option is a good initial step.
"We're doing it for our clients to save money," Klene said. "It will typically save them 20 percent or more on their premium."
Accounts like an HRA or health savings account (HSA) can be funded with pre-tax money and remain free of federal and state taxes as long as they are used for approved health care expenses. By funding the accounts, business owners can, in many cases, help employees cover up to half of the higher associated deductibles. (Deductibles, in general, rose from about $1,500 for a single employee in 2009 to $2,500 and even $3,000 in 2010, according to Klene.)
HRAs are becoming more popular among small-business employers because they don't lose the money in the account if the employee leaves the company, while HSAs travel with the employee.
Either way, companies should take a tailored approach to health coverage. Klene, for instance, recommended a plan based on likely outcomes given a group's history. An employee group with women of childbearing age may see more individuals meet the plan deductible---a likelihood that should steer the business away from an HDHP with an HRA. Another example group, a company with employees who are mostly over age 40, has a lower chance of seeing a high number of individuals meet the deductible, making it a good candidate for the HRA option.
Affordable Options
Margaret Jarvis, spokeswoman for Blue Cross and Blue Shield of Texas, one of Houston's largest insurers, said the company's most popular options are plans with deductibles ranging from $2,000 to $3,000---a range matching Klene's estimate of rising costs. Blue Cross and Blue Shield's most popular small business plan is a preferred provider organization (PPO) tied to a HSA with a $3,000 deductible and 100 percent coinsurance. The plan reduces employees' coinsurance requirement to nil after they meet the deductible and as long as they remain in-network. In contrast, a plan with 80 percent coinsurance leaves an employee with 20 percent of the bill after the deductible.
Insurance company Aetna Inc. reported similar findings. Lee Ripley, vice president of sales for the Texas and Oklahoma consumer markets, said the company's most affordable plan is a PPO value option with a $2,000 deductible, 80 percent coinsurance for providers and treatment and 50 percent coinsurance for in-patient facilities.
"A popular solution is to provide employees further choice and flexibility by adding a dual or triple option on these benefit packages with a more traditional PPO option along with an HSA option," Ripley said.
As the health care industry evolves, small businesses will continue to see more affordable products emerge as insurers and other groups build the health care exchanges between 2010 and 2014, as required by the health reform law.
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