Health care premiums are facing continued growth while many small business owners prepare this year's budget. Congress has introduced HSAs or health savings accounts, providing new avenues for reducing current healthcare costs. Learn how an HSA can benefit your small business.
What is a HSA?
An HSA is a form of consumer directed health coverage pairing a high-deductible health plan with tax-free savings account for medical expenses. They are designed to reduce healthcare insurance costs for employers and employees.
Health Care Crisis for Small BusinessWith the cost of employee benefits rising, small businesses are being squeezed to find new ways of reducing their healthcare contributions. An HSA offers a new viable alternative.
According to The Wall Street Journal, big companies on average spend more than $6,000 per year on health insurance for each employee. Employer health care costs have risen an average of 15% each year over five years to an average of about $700 per month per employee, according to surveys by The Kaiser Family Institute and The National Association of Health Underwriters. Small wonder that 47% of America's small business owners provide no health care coverage at all.
Health premiums costs have outpaced both the 2.2 percent growth in wages and 2.3 percent growth in inflation by five times as reported by the Kaiser survey. The average premium for single coverage rose 9.2 percent to $3,383 annually. Can an HSA offer a fix?
The percentage that employees paid toward the premiums remained steady with singles picking up 16 percent of the tab, the same as in 2003. Employees paid 28 percent of the family premium, up from 27 percent last year. However, singles' out of pocket costs for the premium rose 9.8 percent to $558 annually while a worker's cost for family premium rose 10.3 percent to $2,661.
Kaiser reported that the increase was lower because health plans were paying less for hospital care, doctors and some drugs. Cost shifting has moderated somewhat because employers wanted to give their workers a break after years of demanding they pay more for their care.
The average deductible for a preferred provider organization rose 4.3 percent to $387 for a family of four. But in 2003 the deductible rose 9.5 percent, after a 43 percent surge in 2002.
Benefits of an HSA
- used in combination with a high-deductible health plan.
- contributions are not includible in gross income - they are tax-free.
- help employees become better health care consumers.
- payouts for qualified medical expenses are tax-free.
- savings are owned by the individual and can move from employer to employer.
- can "roll over" year-to-year to create a sizable retirement nest egg.
- accumulated interest and dividends are tax-free or tax-deferred.
- contributions by employers are exempt from payroll taxes.
- "the better rainy day fund" health care savings plan.
An HSA is particularly well situated to help small firms without medical plans to offer them to their employees. An HSA is a form of tax-deferred retirement accounts that can be more easily drawn upon for emergencies than their IRA counterparts.
HSAfinder is a publication of Information Strategies, Inc. who's president, JoAnn Laing has just authored, "The Small Business Guide To HSAs." To obtain a copy at a special price go to www.hsafinder.com.