Five Ways to Save on Employee Healthcare

Healthcare costs take a huge chunk of a small business' bottom line.

In 2006, businesses spent an average of $8,748 per employee, an increase of $518 from 2005, according to a Towers Perrin survey.

It's not surprising then that small-business owners say the cost of employer-sponsored health care is a bigger problem than taxes, labor issues and government red tape, according to the Small Business Administration's Office of Advocacy.

Trim these costs by doing the following:

Shop around for a new plan or drop certain coverages.

If you've already done that, then consider increasing an employee's co-payment or deductible, recommends Paul Fronstin, the Employee Benefit Research Institute's healthcare expert.

To forestall any employee dissatisfaction, make an effort to educate your employees about their benefits and why those steps had to be taken.

Consider instituting a health savings account (HSA).

Altitude, a Massachusetts-based design consulting firm of 30 people, began to offer one last year and it's been wildly popular even among unmarried employees, says general manager Heather Andrus.

It cost the company only $1,000 to set it up through its payroll company and an additional $40 a month to maintain it. Employees, says Andrus, have been thrilled to learn they can set aside pretax dollars to pay for everything from doctor's visits to feminine supplies.

Despite all these pluses, HSAs have not caught on with the small-business community in part because employers have not done a good job explaining how they work.

Build a healthy corporation strategy.

Andrew Webber, president and CEO of the National Business Coalition for Health, says this means providing employees with incentives and a supportive environment for wellness, prevention and self-management of chronic illnesses. For example, offer rewards or gifts for smoking cessation, losing weight and self-managing chronic conditions. He also recommends creating a healthy worksite environment.

Most important, establish a corporate culture of wellness in which leaders model healthy behaviors and encourage employees to do the same.

If possible, join the local Chamber of Commerce and health coalition to leverage a better deal.

Altitude purchased its insurance through the local Chamber of Commerce to keep costs low. A single employee pays $150 a month in premiums, while a worker with family, no matter the size, pays $800 per month.

While the plan has been effective in keeping costs down, there are some cons to working through the local Chamber of Commerce, explains Andrus. Altitude has no choice in its carrier, Harvard Pilgrim, and its plan only covers employees living in Massachusetts.

Eliminate health care coverage altogether.

While this won't win you any popularity contests, it is becoming accepted practice. According to a 2007 survey of employer health benefits conducted by the Kaiser Family Foundation and the Health Research & Educational Trust, 68% of businesses with three to 199 employees offered coverage in 2000.

By 2007, it had dropped to 59%. Why? High premiums and the small size of the businesses were the two most popular reasons given.

Still, why are employees willing to put up with no health coverage? Because they prefer higher wages, the survey discovered.

>To order reprints of this article, click here: Reprints