It's not uncommon for a business owner to face the harsh reality of a huge increase in their Health Insurance premiums from year to year.  When that renewal packet comes in the mail many business owners see a 15 - 40% increase from the previous year!

Many small companies are faced with the undesirable reality that they may have to cut or cancel benefits completely, especially in this economic environment. 

So the question is how does a business owner combat higher premiums in a challenging economy?

While there is not one answer there are strategies you can employ to control these costs.  For example, business owners should take a look at combining programs to lower their premiums.

A strategy that has worked recently is utilizing a common benefit called Flexible Spending Accounts, or FSA's.  The FSA allows employees to budget for out of pocket medical costs with Pre-Tax Dollars, saving both the employee and business money (See my article on Section 125 plans from last month for the calculations).  One local business used this strategy to save over $5,000 per year while keeping the exact same coverage for their employees.

Without getting too complicated, here are the steps the business owner took:

• Company increased the Deductible for their employees by $1,000. (This reduced the annual premium by about $1,600 per employee.)
• The business owner then implemented a FSA and contributed $1,000 to each employees account to offset the Deductible.
• After the FSA administrative fee the business owner was still ahead of the game by $5,088!

There are also hidden benefits for the business with the FSA.  Any additional employee money contributed to this account is a payroll tax savings to the company.

This may not work for every case.  So before you sign your Health Insurance renewal, ask your broker or call me to see if your company would save money using this strategy.

The company discussed above has 11 employees and had a plan with a $250 deductible.

Ray Attisano is a small business consultant with Paychex, a leading national provider of payroll, human resource, and benefit outsourcing solutions for small- to medium-size businesses, who works with small business owners to ensure they are complying with federal, state, and local payroll tax laws, as well as recommending programs that will help them attract and retain employees. He can be contacted at 610-248-8724.