Healthcare costs continue to rise annually, making it challenging for small businesses to offer adequate benefits to their employees. Innovative healthcare models like Direct Primary Care and membership programs are emerging as potential alternatives to traditional insurance.
The Challenge of Traditional Healthcare
Franchisees face unique challenges when it comes to providing healthcare benefits to their employees. In addition to the inflated premiums, limited coverage, inflexible options for non-traditional workers and mountains of paperwork, providing benefits can turn into added stress and cost.
If you are not familiar with a Health Savings Account, HSA, this is the abbreviated definition from healthcare.gov:
Is a tax-advantaged savings account for medical expenses. You can use it for deductibles, copays, coinsurance, and other qualified expenses. HSA funds grow tax-free. To contribute, you need an HSA-eligible health plan with a high deductible. This type of plan often has lower premiums than traditional plans.
Franchise owners can benefit from these plans, which provide a flexible and cost-effective way to support employee health and well-being while reducing their tax burden.
Why HSAs are Ideal for Small Businesses
HSAs offer a number of advantages for small business owners and their employees:
Tax benefits: HSAs offer tax advantages, as contributions are tax-deductible, and withdrawals for eligible medical expenses are tax-free.
Account ownership: HSAs give employees ownership of their accounts, allowing them to save for future healthcare expenses.
Investment opportunities: HSAs often provide investment options, enabling account holders to grow their savings over time.
High deductible health plans: HSAs are typically used in conjunction with high deductible health plans, which can result in lower insurance premiums.
Who is eligible?
Not everyone is eligible to contribute to an HSA. You can contribute to an HSA if:
You aren’t enrolled in a health plan sponsored by your spouse or parent that is not an HSA-eligible health plan;
You cannot be covered by any other type of health plan, including Medicare Part A or Medicare Part B;
You cannot be claimed as a dependent on another person’s tax return (unless it’s your spouse); and,
For indipop plans, you must have 1099 status or an EIN.
What can I use it for?
You may be able to use HSA funds to pay for deductibles, copayments, coinsurance, and other qualified medical expenses.
*Here is a Tip: Save Your Receipts
Where can I use it?
This is just a partial list of where you can use an HSA: Target, Walmart, Walgreens, CVS, Sephora, Warby Parker, Sam's Club, Amazon, Kroger
Now that you're familiar with Health Savings Accounts (HSAs) and their advantages for your team's well-being and your business's finances, consider these options.
Marketplace or Cost-Share HSA?
A marketplace plan can be one avenue to explore an HSA compatible plan, and a cost-share is another route you can go. Why would you opt for one over the other? We will start with the cost share first.
Cost-share HSA: monthly rate based on age
If you are not familiar with a cost share it is another approach to managing your healthcare needs and costs. Instead of your monthly premium being determined by your employment status, location and earnings, this type of healthcare is a membership and the monthly rate is based on your age. Example, a person in Miami age 42 will be quoted the same rate if he lived in Los Angeles. This opens up the opportunity for diverse employment statuses to take advantage of this type of plan. If you have multiple locations across state lines this is also a plus, as these plans may have benefits that work in all 50 states.
The biggest difference between a cost share and traditional health insurance are the terms they use and how they function.
Initial Unshareable Amount vs. deductible
A typical cost share does not use the term “deductible.” It is called an IUA or "initial unshareable amount" -- the amount the member is responsible for if a major medical need occurs. Unlike a deductible, the IUA is based on the specific medical need rather than the calendar year, for example, if you break your leg in December with an IUA you do not have to pay the IUA again in 2025 when you do your post op care and physical therapy. With a traditional healthcare plan your deductible will start over in the new year.
Marketplace plans may have higher deductibles, but they can be a better option for individuals who need immediate coverage, as cost-share plans have a pre-membership lookback period. To keep membership contributions low for all members, cost-sharing plans implement a waiting period for the sharing of existing conditions. If you have a chronic condition this may not be the best route to go as they will not share in that condition for the first year. There are exemptions and each plan is different. We encourage you to read the guidelines to have a better understanding of their benefits and look back period.
Flexibility to choose your providers
Unlike traditional healthcare plans with networks and copays, HSA-compatible plans offer the flexibility to choose your providers. This is because you become a self-pay patient. Preventive screenings and immunizations are typically included. For primary care, urgent care, specialists, and other medical services, you'll use your HSA to pay as a self-pay patient.
By choosing to offer an HSA compatible plan, a small business can not only improve employee satisfaction but have a competitive edge when providing benefits. A study by the Employee Benefit Research Institute (EBRI) found that employees with HSAs have lower healthcare costs and are more satisfied with their benefits compared to those with traditional health insurance plans. It is something worth exploring as we move into the Open Enrollment season.
Consult with your accountant first
We also recommend consulting with your accountant before enrolling in an Health Savings Account compatible plan. Here's a link to the IRS webpages on HSA forms for ease of reviewing information about medical and dental deductions.
This article was originally published in Franchise Wire in September 2024.About the Author
