Birmingham Small Business.com

With Governor Bob Riley meeting with various small business owners yesterday discussing the affordablity of health insurance for small businesses, I thought this WSJ piece to be timely, and informative. {The follow information is a summary and was taken directly from the article. Additional details can be found by visiting the article itself.}

Insurers are offering more varied plans that include less-expensive options. Nonprofit groups and legislators have paved the way for small companies to band together in purchasing cooperatives to get lower rates. A handful of states now offer subsidies and credits to small businesses that offer health insurance — and others have begun levying fines on those that don’t.

Here’s a look at four broad health-insurance options that small businesses may find feasible.

Co-op Approach

HealthPass, founded with a grant from New York City, reduces the administrative burden for employers by handling much of the back-end work. It gives small companies access to more than 30 coverage options from four carriers, who pay its costs.

HealthPass focuses on small businesses in New York City and surrounding counties. But other state and city groups have created similar options. Cleveland’s Council of Smaller Enterprises helps more than 11,000 member businesses buy health insurance, making it one of the larger cooperatives in the U.S. By banding together, entrepreneurs can get reduced rates when buying everything from health insurance to workers’ compensation. New Mexico created a Small Employer Insurance Program in 2006, which helps employers with 50 or fewer employees buy into a comprehensive health-insurance program.

Expanding Groups

When contractors and other small-business owners are part of a larger entity that doesn’t offer a group plan, it might help to ask the parent organization about possible options, to keep it on managers’ minds.

Meanwhile, group rates can be found in less obvious places, too. Buying an executive membership at the purchasing club Costco Wholesale Corp. for $100 a year, for example, can entitle a small business to health- and dental-insurance programs at prenegotiated rates. States where Costco offers this service: California, Washington, Oregon, Nevada and Hawaii. Costco says members can save from 5% to 20%, depending on the state.

Sorting Options

For small businesses that go it alone when purchasing insurance, it might help to engage an insurance agent to sort through options. Agents are typically paid by the insurers, so their services are free to the business.

One idea popular with agents is an employee-elect arrangement, which allows even small companies to choose from the gamut of a carrier’s plans. In the past, small employers could offer only one or two plans to their workers. They sometimes felt obligated to pick the most comprehensive — and expensive — plan, so that employees with greater health needs had enough coverage. But as insurers try to snag market share by bestowing big-business options on small companies, there is more to choose from. Employees who need less coverage can opt for cheaper programs, thus reducing premiums.

Some carriers addressing this market, as employers keep cutting benefits to try to reduce costs, include Aetna Inc., Hartford, Conn., and Blue Cross of California, a unit of WellPoint Inc., and says Neil Crosby, director of sales at Warner Pacific Insurance Services, a Westlake Village, Calif., general agency that works with brokers and agents.

Employers who have a mix of young single workers and older employees tend to benefit most from employee-elect arrangements. Employers often pay 75% to 80% of the premium, and employees pay the rest, plus any upgrades.

Another option brokers find promising is an exclusive provider organization, or EPO, plan, which keeps premiums low in part by limiting choice of doctors and hospitals. With an EPO plan, people can get reimbursed if they see any doctor that has a relationship with the insurer. But they typically won’t get reimbursed if they go outside the EPO’s network of doctors and hospitals.

Consumers Decide

Another choice for small-business owners is a consumer-directed plan — a high-deductible plan that works with a health savings account or a health reimbursement arrangement, two ideas that have become more popular within the past five years.

With an HRA, an employer can set aside money to help employees meet the new, higher deductible. The funds belong to the employer, and can be rolled over from year to year to pay for future medical expenses. Money from the fund spent on reimbursement is tax-deductible to the employer, which can heighten the appeal.

An HSA works similarly, only an employee or an employer can fund the account, and the money belongs to the employee. The funds are used to pay qualified medical expenses, and unused portions can be rolled over for use in future years. The account is tax-advantaged, meaning employees can invest the cash in products like mutual funds and let it grow tax-free. Withdrawals are also tax-free on qualified medical expenses. Plus, employees can get a break on taxes just by contributing. The Treasury Department estimates a single taxpayer making $60,000 a year and contributing $2,500 to an HSA can reduce his or her federal income tax by $625.

Ms. Waxenberg says HSA options tend to make the most sense for employers paying 100% or 50% of the premium. If the employer is paying 75% or 80% of the premium, neither the employer nor the employee sees enough of a break in their premium to feel good about the deal.

Employers should be aware, though, that they’re likely to face some dissent from workers if they cut benefits and raise the employee’s costs. “In those cases, you really need employees who understand the big picture,” Ms. Waxenberg says.