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How small-business owners can reduce health care costs

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Rising health care costs are one of the largest expenses facing a small-business owner. One of the ways employers can manage increasing health care expenses is by offering their employees consumer-driven health plans.

Many consumers are familiar with health savings accounts (HSAs). However, lesser-known consumer driven health plans are health reimbursement accounts (HRAs), which are also available for the small business owner.

Like HSAs, HRAs can be combined with a medical plan. The benefits to employers are numerous. They lower the cost of premiums when offered with a high-deductible policy. Contributions are tax deductible. It maximizes your cash flow and improves employee health. Unlike HSAs, any unused dollars belong to the employer. Small employer groups have the option to fund as little as half of the deductible, or the maximum contribution would be equal to the amount of the deductible. You do not have to fund the entire contribution at the beginning of the year; instead, you can contribute to the fund throughout the year.

An HRA is an IRS-regulated, employer-funded health reimbursement account that allows your employees to receive tax-free reimbursement for eligible out-of-pocket health expenses. You do not pay federal or FICA taxes on HRA contributions. HRA funds can be used to cover co-pays, coinsurance and deductibles. HRA accounts are 100 percent employer funded. Employers maintain full control of the funds. Accounts are debited as employees pay for services. The unused funds roll over year to year. Funds are tax deductible for the employer and tax-free for the employees.

An HRA will put your employees in the driver's seat, empowering them to become well-informed health care consumers with the ability to make smart choices about their health care. Employees become involved in their medical decisions and make wise use of health care services. Employees become smarter consumers and spenders when it comes to health care services.

A plan like this can boost employee's morale and save the employer money at the same time.

For more information on HRAs or HSAs, contact Elizabeth Long at Barney & Barney LLC at (858)587-7446 or elizabethl@barneyandbarney.com.

Long is with Barney & Barney's Small Business Division.

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