The federal government does it...big corporations do it...shouldn't you do it, too? We're talking about a way to possibly save money on your health insurance costs – a way to not only keep premiums from increasing, but in some cases to actually reduce costs!

Traditional insurance plans pay for all medical costs (except for say, a small $10 or $15 co-pay amount). Your employees love this type of plan, except when they are asked to pay substantially more each year if they share in the cost of coverage for family or other dependents. You as the employer hate it because your costs for this type of benefit go up each year (remember those 15% to 30% premium increases?).  So what's the secret to reducing costs?

The answer may be to turn your present health insurance plan into a high deductible plan. This means that you as the employer make a decision to not have your insurance cover the first dollars of medical costs for each employee, but to instead increase the deductible to $1,000, or $2,000, or even more per person. As a result, the premium you pay will decrease substantially.

"Whoa!" you say. "We can't have our employees pay several thousand dollars out of pocket each year to cover those high deductibles. They won't stand for that!" Here is where you as the employer step back in and set up an agreement whereby you will reimburse your employees for the deductible amounts they pay. In essence, you are betting that the premium savings you will realize will exceed the deductible reimbursements you will make. Yes, it's a gamble, but thousands of large and medium-sized corporations, and now even branches of the U.S. government are using this type of arrangement to rein in health insurance costs.

Your current insurance provider probably already offers this type of plan as an option and can help you run calculations of the cost differences based on your employee group and prior health claims. If you've never heard about this type of plan from your insurance provider – ask! It's probably available, but they may make more money selling you the traditional coverage. As an alternative, you can engage a benefits consultant to not only run the calculations, but shop for the best premium rates for you. One other factor to consider is how to handle the reimbursement claims from your employees. Remember, they will now need to submit some form of paperwork in order to get reimbursement for their out-of-pocket deductible. Someone within your company can do this, or you could use an outside benefits consultant to handle this for you. An additional advantage of the latter approach is that it helps to maintain HIPAA confidentiality within your company. If the reimbursement process is set up properly, your employees should be able to receive their company reimbursement check before payment is due to the medical provider. This means that your employees will not have to "front the money" for their medical treatment. In essence, everything is the same for them as before, except that they must turn in some paperwork and will be responsible for forwarding payment on to the provider.

The type of plan described above, known as a Medical Expense Reimbursement Plan (MERP), can be combined with arrangements from existing plans to offer you and your employees additional savings. For example, if you require your employees to pay a portion of their premiums, you can still use (or implement) a Section 125 arrangement so that they can pay their portion with pre-tax dollars. You as the employer save as well, because this is less salary to pay FICA taxes on. Another option is to set the plan up as a Health Reimbursement Arrangement (HRA). The mechanics are the same, only under this plan the employer decides how much to contribute toward reimbursements for each employee. Once that amount is exceeded, the employee bears the cost. The advantage for the employer is that annual costs are known, but employees may not like the fact that they bear the risk if they exceed the amounts set aside for them.

Medical insurance is one of the largest budget line items for contractors, and one of the most valuable fringe benefits for employees. Look at the new options available to you so that you can continue to afford this important benefit. For more information, contact Ali Carney of McKonly Benefits at acarney@macpas.com or 717-761-7910.