Small Businesses, Employees Can Benefit From New Programs In recent surveys, almost half of all small businesses reported they were contemplating changes in their healthcare programs. In almost every case, managers said they would be shifting more of the costs to employees.
New legislation and programs are now available to enable employers to soften the impact of these changes on employees while providing a portable, easy-to-use retirement program. These programs involve Health Savings Accounts (HSAs). While not for everyone, for any small business contemplating changes in their healthcare programs, HSAs should be thoroughly explored. A good HSA strategy cuts overhead costs, reduces taxes, streamlines administrative chores and provides long-term retirement benefits to the employee. The savings could total almost two-thirds of current expenses. (for more information, click here)
The new program is also the answer for companies who always thought they "couldn't afford health insurance" for their workers. For small businesses already offering health insurance benefits, this same program can cut what employers are paying for benefits – a big part of your overhead expenses – by as much as two-thirds. If you've never heard of such a program, you're not alone. It's very new.
On January 1, 2004, a new federal program was launched that allows self-employed individuals as well as business owners to establish Health Savings Accounts (HSAs). Briefly, HSAs are a new option from the U.S. government that offers individuals a tax-sheltered way to accumulate savings for medical expenses. Business owners who offer such a plan to their employees can benefit modestly from tax relief, and, most importantly, can realize substantial health cost savings on a day-t- day basis. In most cases companies may be able to reduce medical insurance costs by two-thirds by beginning an HSA strategy in the 2004 tax year.
HSAs began as a pilot program in 1996. The early versions went by the name of MSAs (Medical Savings Accounts or Archer Savings Accounts). Approximately 1,500,000 Americans took part in this experiment, which was restricted ONLY to small businesses and self-employed individuals. By the year 2000, the experiment proved to be such a cost saver, and such a responsible way for individuals to control their own health care expenses, that Congress decided to open up the program to ALL businesses, large and small. President George W. Bush signed it into law as part of the Medicare Prescription Drug, Improvement and Modernization Act (Section 1201) in 2003.
Right at this moment, large American corporations are crafting HSA strategies to reap these tax savings and employee expense reductions. But, large companies can be disadvantaged because they are often slow-moving: they have lots of employees, many different health plans, shareholders to placate, and many masters to serve.
For small business owners, HSAs are a window of opportunity to offer themselves and their employees an attractive new health care benefit plan(s) that costs less and also serves as a retirement investment that is as triple-tax-free as any gilt-edged bond. Similar in many respects to IRAs, Keoghs, and 401(K) plans, the tax advantages of HSAs make them a "better rainy day fund" because contributions can be taken out, as needed, for medical expenses before retirement – yet those dollars can still remain tax-free.
And unlike large corporations, small companies can move far more quickly to implement HSA plans. These programs can start immediately, for the 2004 tax year, and in less than a year deliver real results in tax savings. And, if planned correctly, employers and employees may find that they are spending far less for heath care than ever done before.
Spending less on health care coverage can help make any business more competitive. For more details, click here.
JoAnn M. Laing, President of Healthcare Information Strategies, Inc., a consulting firm to small businesses has been studying the HSAs marketplace. She said “it doesn’t matter who you are in the world of small business, healthcare is an issue facing everyone.”
“As a sole proprietor, you have the need to provide for you and your loved ones,” she adds.
“As an employer with two or more employees, you have wider responsibilities and greater needs,” she says. Laing and others also point out that as the most senior manager of a company with 500 employees, the problems are the same only on a much wider scale.
In every case, healthcare is one of the top three issues facing you today.
The legislators who passed this program came together and made the laws rather quickly to address a long-standing vexing problem that faces more than 100 million Americans, providing adequate healthcare for employers and employees in small businesses.
Healthcare issues affect everyone. To find out how you can benefit from these new accounts click here.
HSAs Summarized
In a nutshell, HSAs were designed to help people "self-manage" medical expenses to decrease their costs for health care. The program is made up of two parts – it pairs a high-deductible health insurance policy with a trust account or trust fund similar to the instruments used for an IRA, Keogh, or 401(K).
These accounts are not just for retirement planning, they are a tax-free, health-spending account that, after the first tax year, becomes a tax-advantaged savings account. Dollars put into the account can be used for qualified medical expenses as needed; any dollars remaining can be rolled over for spending in future years, or invested to accumulate savings for health care after retirement.
To those familiar with IRA, Keogh and 401(K) plans, HSAs operate in much the same manner, with several important differences. The most important, and most difficult to understand, is the fact that monies can be withdrawn at any time for medical related expenses. What constitutes a medical expense is pretty basic. Treating a broken nose is okay. Getting wrinkles removed is not.
There is a lot more to this process that can be explained by professional advisor. The key thing to remember is the monies put aside are not taxed until after the employee retired and never when used for medical expenses.
As employer contribution does not require any excise or FICA payment. The details of this and many other wrinkles need to be fully explored with a professional advisor.
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