Sunday, August 17, 2008
Medicare Prescription Drug Premiums to Rise in '09 (HealthDay)
A small business faces an almost overwhelming number of issues when it comes to providing benefits to their employees: Should a small business provide group insurance to their employees? How many employees does a small business need to have to qualify for a group insurance plan? What about branched chain amino acid option of providing individual insurance plans for the employees? What are the rules that I must follow?
When a business is starting out, many times it is a single person operating the company. The owner-employee, many times, considers starting a group insurance plan - because it is a business and is a tax deductible expense. Actually, this doesn't make sense for two main reasons. You, likely, don't have enough employees to be considered by a group plan. Most insurance companies require at least three employees to consider insuring the group. Secondly, group plans are typically much more expensive. Why? Because their underwriting is quite different. A group plan must accept anyone to the group no matter what new employee's health conditions. In an individual plan, each individual's health history is considered and the premiums are less expensive.
Assuming standard health, the individual plan will be approximately 20 to 30% less expensive than a group plan. Rather than providing group coverage, most small employers find that they can provide an equal amount of money to each employee. (Be careful here. You cannot play favorites -- co-q10 employees must receive the same amount of money. Another restriction is that you cannot say that they won't get the extra money if they don't buy an individual health insurance plan. It is best to consult a competent certified public accountant.)
A self employed individual can maximize his tax deductions, minimize his risk of a catastrophic loss, and decrease the cost of his insurance plan by choosing an HSA or health savings account plan. This is a combination of a high deductible health plan and a savings account that you open up at the local bank.
The high deductible health plan is considerably less expensive than a low deductible copay type plan, as you might guess. Typically after the deductible is met, the insurance company covers 100% of medical and drug expenses. There are no copays to see a doctor and there are no copays for drugs. To see a doctor, you can expect to pay $60 instead of $30 for the usual copay type plan. The concept is that you take care of the "little expenses" and the insurance company will take care of the "big expenses".
The second part of the combination is the HSA or health savings account. You get a tax deduction for merely setting aside savings -- you don't have to use that money to get the deduction. Just put the money in the account. If you don't use the money for medical expenses and drugs, the money does not vanish like it does with the flexible savings account type plan that many employer's offer. This money is yours, and it will be there to earn interest or as the years go by. As the amount of money grows, you can invest the money as you wish. Earnings, interest and value growth are not taxable until you take the money out of the account at the age of sixty five.
In summary: It is advisable for the self employed individual to purchase a high deductible health plan and open an HSA or health savings account. This minimizes his cost, decreases his risk, and taxes advantage of tax deductions. In addition, if the self employed individual has the money available, he should open the health savings account to get an additional tax deduction.
After the company grows to about eight to ten employees, the company should investigate switching to a group health plan.
Richard Day has years of experience finding the exact plan that will fit his client's needs. He adopted the HSA concept early, and will help you to understand how they work. This link for more information concerning the Blue Cross Blue Shield of North Carolina, Blue Options HSA. If you would like comparison quotes visit: http://www.ehealthinsurancesource.com
