Insurance holders are not the only ones feeling the effects of rising insurance costs. For small and medium-sized businesses (SMBs), rising healthcare costs pose a significant challenge. These ever-increasing costs are not just a financial strain—they directly affect profitability, employee recruitment and retention, and growth opportunities. However, with thoughtful planning and expert financial guidance, it’s possible to manage these rising expenses without sacrificing the health of the employees or the business.
Understanding the Factors Behind Rising Health Care Costs
Healthcare costs have been steadily climbing year after year. In fact, recent data shows that in 2023, the average annual premium for employer-sponsored health insurance reached a staggering $23,346 for family coverage. Several factors are driving these rising expenses:
- Medical inflation has caused the price of services, treatments, and medications to soar.
- Regulatory changes like the Affordable Care Act (ACA) have increased compliance costs for businesses.
- Demand for health services has surged as the workforce ages and as chronic health conditions become more prevalent.
These increases put SMBs in a tough spot, forcing them to find ways to cut costs without compromising the benefits that attract new employees and keep existing employees.
Offsetting Expenses with Tax Deductions and Credits
Luckily, SMBs can take advantage of several tax deductions and credits to alleviate the financial burden of healthcare costs. The Small Business Health Care Tax Credit offers a valuable opportunity for eligible businesses to reduce their tax liability while still providing health insurance to employees.
To qualify, businesses must:
- Have fewer than 25 full-time equivalent employees.
- Pay average wages of less than $56,000 per year.
- Cover at least 50% of employees’ health insurance premiums.
Employer-sponsored health insurance premiums are also eligible for tax deductions. Businesses can deduct the entire cost of premiums for employees as a business expense, reducing their taxable income.
Strategies for Reducing Health Care Costs Without Cutting Benefits
Beyond claiming tax benefits, there are other ways for SMBs to reduce healthcare costs without cutting benefits. Consider the following options:
- High-Deductible Health Plans (HDHPs) with Health Savings Accounts (HSAs): HDHPs have lower monthly premiums but higher deductibles. However, you can pair them with HSAs, which are tax-advantaged accounts that allow employees to save for qualified medical expenses.
- Industry-Specific Health Pools: Industry-specific healthcare pools allow SMBs to access group rates that would otherwise be unavailable. Negotiating as a larger group, businesses can negotiate better terms and reduce per-employee costs.
- Implementing Wellness Programs: Promoting a healthy workforce can lead to reduced long-term healthcare costs. Wellness programs that encourage preventive care, physical activity, and healthy eating habits can reduce the risk of chronic diseases and lower long-term healthcare costs for both you and your employees.
Considering Alternative Benefits and Compensation Options
For some businesses, offering traditional health insurance plans might not be the most cost-effective option. Here are some non-traditional alternatives:
- Flexible Spending Accounts (FSAs): Similar to HSAs, flexible spending accounts allow employees to set aside pre-tax dollars to cover qualified medical expenses.
- Health Care Stipends: Providing a set amount of money directly to employees for their health care needs can give them flexibility while reducing your company’s financial burden.
These alternatives are particularly appealing to younger employees or those with fewer medical needs. Both options reduce the financial strain on the business while still demonstrating a commitment to employee well-being.
Working With a Healthcare Cost Management Partner – Your Accountant
Navigating the complexities of healthcare costs requires not only understanding the available options but also careful financial planning. Boris Benic and Associates can help you develop a comprehensive strategy to:
- Forecast Healthcare Expenses: We can analyze your current plan, your employee demographic, and industry trends to predict future healthcare costs.
- Optimize Tax Savings: We ensure you are taking advantage of all available tax deductions and credits for your healthcare plan.
- Manage Budgets Effectively: We help you allocate resources efficiently, ensuring your healthcare spending aligns with your overall financial goals.
Don’t let rising healthcare costs limit your business’ potential! At Boris Benic and Associates, we specialize in helping businesses develop smart financial strategies that can keep healthcare costs in check. Let us help you optimize your overall financial health while positioning your business for future success.