Dear Tom and Alan:
You hear this often, and I’ve read this same statement in your column.
As a small employer, my health insurance costs are going through the roof. Double-digit increases each year. It’s definitely become the second largest expense of running my business.
Short of cancelling my plan and having my employees go buy their own, what should I do?
Strapped With Overhead
Tom: This is a common question among employers of any size.
Sounds like you really care about your employees. Well done.
Let’s think about how we can send the least amount of money to the insurance carrier while still offering a health plan that appeals to your highly important workers.
An example of minimizing premium dollars sent out to an insurance carrier while maximizing benefits would be to change from a low-deductible plan to a high-deductible plan.
For example: A $500 deductible (this is considered low these days) with $20 office visit copays for a 40 year-old would cost $511 per month. On the other hand, a $5,000 deductible (found in most “bronze” plans) with a $70 office visit copay would cost $315 monthly.
Round the savings per month to $200 or $2,400 annually. Take the savings and make an employer contribution to each employee’s Flexible Savings Account (FSA).
The employee can use these funds, on a pre-tax basis, to pay for health care out-of-pocket expenses.
The kicker in all this is if the employee doesn’t use all of the employer’s FSA contribution during the plan year, the balance is returned to you, the employer.
Al: All of this got me looking into FSAs on the Healthcare.gov website. They sent me to IRS Publication 502 as to exactly which benefits are available under an FSA plan.
The first two pages listed which medical expenses are “includible” and which are not.
Among the hundred or so that are: abortion, acupuncture, alcoholism, artificial limbs or teeth, birth control pills, drugs, eye exam and glasses and contacts, hearing aids, lab fees, lead-based paint removal, long-term care, psychologist, transplants, vasectomy, weight-loss program and X-ray.
Among those not included: baby sitting and childcare (I was positive childcare was allowed), cosmetic surgery, funeral expenses, health club dues, drugs from other countries, weight-loss programs, nonprescription medicines and health savings accounts.
Tom: Health Savings Accounts (HSAs) are often confused with FSAs. Although an employer can fund an employee’s HSA account, the funds always belong to the employee and there is no “use it or lose it.”
In fact, the employee can take it with him/her to a new job and theoretically continue to fund it year after year until age 65.
At that point, he/she can withdraw funds that are treated just like taking money from an IRA. One can even pay long term care premiums with HSA funds.