Employee benefits
You can provide healthcare benefits
By Paul Zane Pilzer

If you are like most chiropractors who own a small business (average number of employees, 3.5), you don’t offer your employees healthcare insurance — probably because your business is too small to afford the cost of administering a group benefit plan.

But healthcare coverage isn’t. You can do this by providing your employees with a defined contribution insurance plan called a health reimbursement arrangement (HRA).

You are probably more familiar with traditional defined benefit plans in which the employer provides defined healthcare benefits to employees. Those benefits often include doctor visits, hospitalization, pharmacy costs — at uncertain annual costs that (for the last several years) have experienced double-digit increases.

One of the bad features of a defined benefits plan is that if you have one or more employees who have serious (and expensive) medical problems, the cost of the premium goes up. In 2006, the average cost of a traditional defined benefits employer-sponsored health plan is expected to be $4,500 per individual and $14,000 per family.

In a defined contribution plan, you provide your employees with a tax-free allowance (contribution) to spend on their own healthcare — at an annual fixed cost that you control (not the insurance company). Employees use this allowance to pay for the premium on individual/family health insurance policy or to pay out-of-pocket medical expenses.

Although employees at first may think that individual healthcare plans are not a “good deal,” with a little education, they will come to see that these plans have advantages for them over traditional group coverage. These advantages include:

• Lower-cost. While every state is different, in 2006 the average cost of an individual healthcare plan is less than half the cost of traditional group coverage.

• Tax-free coverage. An HRA is tax-free to employees and (by law) is funded entirely by you.

• Guaranteed coverage. Coverage does not depend upon employment. So, if an employee desires to take early retirement, for example (before becoming eligible for Medicare), he or she still has healthcare coverage.

• Choice of coverage. Employees can choose an insurer based on their needs, including access to physicians.

• Premiums not affected by claims. Insurers cannot raise rates on individual/family policies because of major illnesses or expensive claims. Nor can they cancel policies for these reasons.

HOW TO SET UP AN HRA

If you do not already have healthcare coverage for your employees, setting up a defined contribution plan is not difficult, although you may find that working with an accountant and/or a health benefits consultant may be helpful.

1. Decide on the amount of contribution. HRAs, by law, must be entirely employer-funded. Review your finances and decide how much per employee you can afford.

2. Consider your employee population. Do you have employees with different types of needs? You can set up different types of HRAs for special purposes, such as for single employees, families, and for unhealthy individuals with preexisting health problems. Each type can have a different contribution.

3. Hire a third-party administrator (TPA). For a fee as low as $5 per month per employee, a third-party administrator can take care of all of the administration of HRAs.

4. Implement. Hire a health benefits consultant to help educate your employees about the benefits of the program and to help them identify and choose individual/family coverage that meets their specific needs.

Health reimbursement arrangements are the wave of the future. You will see large employers switching to them. But, for small employers they are a “gift” from Washington that allows you to give your employees (and your own family!) healthcare coverage.

This article only highlights HRAs, of course. For more information, talk with a healthcare benefits consultant and your accountant.

SIDEBAR:
How an HRA benefits your practice

Paul Zane Pilzer is a world-renowned economist, a multimillionaire software entrepreneur, an adjunct professor, and the author of seven best-selling books and dozens of scholarly publications. His latest book is The New Health Insurance Solution (Wiley, 2006) www.tnhis.com. He can be reached through his Web site at www.paulzanepilzer.com.