Affordable Health Insurance Options for Small Business Owners

Small business owners are embracing Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs) as affordable health insurance options. As employers spend less on premiums, they can afford to siphon part of that savings back into their workers’ accounts.There are significant differences between the two.

HSAs are a tax-exempt trust or custodial accounts that employers or individual employees set up with a qualified HSA trustee to pay or reimburse certain incurred medical expenses. The employer and/or employee may fund money to that account and the employer tax savings denote that contributions are tax deductible in the year the contribution is made. It requires a High Deductible Health Plan.

With an HSA there can be no reimbursement for expenses until the deductible has been met and the eligible employee owns the funds even if the employee should quit, change jobs or retire. Their contributions can be pre-tax or tax deductible on the employee’s personal tax return.

You may enjoy several benefits from having an HSA:

• You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040.
• Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
• The contributions remain in your account from year to year until you use them.
• The interest or other earnings on the assets in the account are tax free.
• Distributions may be tax free if you pay qualified medical expenses.
• An HSA is “portable” so it stays with you if you change employers or leave the work force.

The following HSA eligibility requirements to qualify for an HSAmust be met:

• You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month.
• You have no other health coverage except what is permitted other health coverage.
• You are not enrolled in Medicare.
• You cannot be claimed as a dependent on someone else’s 2011 tax return.

HRAs are tax-advantaged, employer-funded medical reimbursement plan that helps both employees and employers to reduce health care costs. The employer pays a predetermined amount of pre-tax dollars towards an employee’s out-of-pocket expenses and annual deductible, for employees to use to pay for their health care expenses annually. The employer’s tax-saving contributions are tax deductible when paid to the participant to reimburse an expense. For employees, their tax savings include reimbursements for eligible expenses excluded from income.

By offering an HRA, a small business employer will have lower premiums, tax advantages, easy HRA administration with auto rollover from the health plan to the HRA fund and unique options that fit the unique needs of individual small business employers.

Despite raising deductibles increasing risk for employees —it also reduces monthly premiums. Employers may recognize this trade off, and can in return: reduce premiums to continue offering benefits, involve employees in their health care decisions, and contribute direct funds to assist employees in financing their health care.

Knowing your options and understanding the differences between them is the best, first step in finding the right plan for your business and your employees.