Controlling Health Insurance Costs

HOWARD M. ROSEN, CPA, JD
CONNER ASH P.C.

For many small businesses health insurance costs are rising faster than the ability to pass on the costs to our customers. In fact, for many of us the cost of health insurance is now our second or third largest expense. Does that mean there is nothing we can do to get some control over these costs? Fortunately there are a few ideas that can help you moderate the increase or possibly even decrease the cost of health insurance for your business.

Let's start by looking at the type of plan you have. Many small businesses have what are known as "first dollar" policies. That means the employee's medical costs are covered in full with the exception of small co-pay for certain costs such as doctor's office visits and prescriptions. This is typically the most expensive type of policy to have. Switching to a deductible policy can save a large portion of your premium dollars. A deductible policy means that someone (the employer or employee) will pay the first dollars for medical services rather than the insurance company. For example you may decide that a $500 deductible policy is the best fit for your company. If this were the case, either the employer or employee then would be responsible for the first $500 of medical services and then the insurance company would be responsible for any costs above this amount. We have seen situations where a premium decrease, due to incurring, or enlarging a health insurance deductible, has far exceeded the total possible out of pocket costs that could be incurred if every employee were to use the deductible in full.

Let's look at a quick example. Assume you have 20 employees and that by going from a first dollar policy to a $500 deductible policy you are able to save $12,500 in health insurance premiums. If you were to reimburse your employees for their out of pocket costs as the deductibles were incurred and if every employee were to use their deductible in full the employer would still save $2,500 versus a first dollar example. The potential savings are even greater by going to a $1,000 deductible policy. Naturally this is only an example and each proposal will need to be analyzed to determine the potential cost savings.

There are other methods to save on health care costs such as 125 and 105 plans. We would be happy to discuss these and other methods with you and your insurance broker. Please give us a call if you would like to pursue this matter further.