Yes, health insurance costs are going up. But here’s what small businesses can do

There will be many issues debated during this election year, but one thing’s for sure: No one will be arguing about the rising cost of health insurance.

In the last year alone, the cost of an annual family premium for a typical company’s sponsored health plan rose on average about 5% to almost $21,000 per year per family, according to a study released this fall from the nonprofit Kaiser Family Foundation. That rate of increase remains significantly above annual inflation and the increase in workers’ wages. Since 2009, according to the study, average family premiums have increased 54% and workers’ contribution has increased 71%, several times more quickly than wages (26%) and inflation (20%).

“It’s scary out there when it comes to health care," says Mitchell Cohen, the owner of Cohen & Co. Hardware and Home Goods, a fourth-generation retailer on East Passyunk Avenue. "Sometimes I have to pay the health-care bill before buying merchandise.”

The Affordable Care Act requires employers with more than 50 full-time equivalent workers to provide a health-care plan. But many small-business owners – like Cohen – offer health insurance not only because it’s a competitive advantage but also because, well, it’s the right thing to do.

But unfortunately health insurance is becoming increasingly cost prohibitive, particularly for a small business. The good news is that there could be some relief beginning in 2020.

That’s because the Departments of Health and Human Services, Labor, and Treasury finalized a rule in June that expanded the use of health reimbursement arrangements (HRAs) by employers to fund premiums for their employees in the individual health insurance market. The rule goes into effect on Jan 1.

What does this mean for small employers? More options.

Put simply, a health reimbursement arrangement is an employer-funded health benefit plan that reimburses employees for out-of-pocket medical expenses. HRAs have been in existence for a number of years, but the new rule now makes it possible for small employers to offer or use an existing HRA to help employees pay for health insurance they buy elsewhere. Because contributions are made by the employer pre-tax, using an HRA yields tax advantages to offset health-care costs for both employees and employers.

"HRAs can be a great fit for many small businesses," says Ed MacConnell, the owner of Total Benefit Solutions Inc. in Trevose. "The new rule should allow more flexibility most especially for those who have a workforce with permanent part timers. Overall I am recommending it when it is a good fit for the client's needs because it will ultimately allow employers to offer more access to coverage for more people without replacing the ACA reforms or health plans.”

MacConnell also believes that the new ruling – if it becomes popular – could help increase the level of enrollment on the individual exchanges, which has seen its numbers drop over the last few years, and this could contribute to lower rates across the board in the future.

Ronnie Beth Stanley, a principal at the Megro Benefits Co. in Radnor agrees. But she’s also making her clients aware of some drawbacks. “If the employer has not offered health insurance to their employees in the past, this may be a good option,” she says. “But for some employers who already offer health care to their employees, they may be required to drop their group health plan in order to take advantage of this new aspect of HRAs.” Stanley warns that the individual market is a more expensive market to acquire health coverage, especially costly for an employee over the age of 45.

"Another concern is that employees may find the open marketplace very confusing and overwhelming to determine which benefit plan is best for them and their family," she says.

HRA plans are essentially for good for any company who wants to offer more coverage choices to their workforce regardless of their employment status or to provide more benefits to their employees without having to buy more insurance. Even if your company already has a high-deductible health plan, then adding an HRA that reimburses employees just for their out-of-pocket costs may be a great way to increase participation while helping to control costs.

With such a significant change coming this year, it’s a good idea to revisit your company’s options with your health insurance broker and accountant and explore whether you can take advantage of HRAs. Both MacConnell and Stanley agree they could be an effective strategy to reduce health-care expenses, but it depends on each company’s plan.

So will small-business owners like Mitchell Cohen take advantage of the new rule? For now, he’s staying put. The rules are complex and Cohen, like many others I know, remains wary. “Despite these changes, it’s the small guy who always pays,” he says. “To be honest I’m just staying open more hours to help pay for the increased costs."