Affordable coverage: 4 strategies to help you manage rising costs.

For most small and midsized business owners, the costs of providing affordable health-care coverage for their employees have become more and more difficult to bear.

Fortunatcly, there are several sensible and straightforward strategies that companies can use to minimize, even mitigate, health-care-related expenses that would otherwise prove prohibitively expensive.

1. Baby steps -- A common-sense approach to the problem of inordinately expensive workplace health insurance coverage is to simply avoid drastic changes and rely instead on a number of smaller adjustments to the coverage. By trimming some of the "fat" from a firm's health insurance plan, employers can derive huge savings on the monthly/annual health insurance premium. Small changes, such as switching from brand name prescription drug coverage to generic coverage, are much less likely to have a significant impact on employees than larger maneuvers (such as a drastic increase in the deductible or elimination of certain lines of coverage) and can quickly add up to valuable savings.

2. Ask for a volunteer -- Asking employees to incorporate more voluntary benefits into their overall coverage package is another strategy that can have dramatic results. By making certain aspects of their benefits package (dental, vision, long-term care, long- and short-term disability, life, etc.) are optional, employers and employees can shape coverage according to their needs. This approach results in a more streamlined, efficient coverage structure, minimizing wasteful and expensive insurance options, as well as providing lines of coverage at a much cheaper rate than employees could obtain on their own.

A Section 125 Plan, also called a "premium-only" plan, makes the "volunteer" strategy an even more attractive option for employees. Under this plan, a company can arrange (for a small fee) for the premiums for any voluntary coverage (excepting voluntary life and long- and short-term disability) to be taken out of employees' paychecks before taxes.

3. Stay flexible -- A Flexible Spending Account (FSA) provides an inexpensive way for employers to make more expensive health insurance costs more manageable--and ultimately more palatable--by establishing a pool of money that employees can set aside at the beginning of the year and draw from (tax free) as needed when medical expenses arise. An FSA not only offsets the costs of unexpected and uninsured expenses, but also provides employees with the freedom and flexibility to budget for their own coverage, as well as the peace of mind that comes from setting up what is essentially their own personal rainy day fund.

4. Keep your promise -- A relatively new weapon in the fight against rising insurance costs, Health Savings Accounts (HSAs) enable the provider to decrease premiums by raising the annual deductible (minimum of $1,000 per single employee and $2,000 per family) and allowing employees to establish tax-favored savings accounts to pay for qualified medical expenses. Although this practice has become increasingly prevalent over the last 10 or 15 years in an informal way, with unofficial agreements between employee and employer providing a similar function, HSA legislation codifies the arrangement, allowing administrators to manage the plan formally through providers.

HSAs are relatively untested in the marketplace but may provide significant savings for certain employer groups and their employees. HSAs and related insurance vehicles are likely to gain momentum in the coming years as the concept of consumerism becomes more widely accepted.

No matter what techniques business owners use to combat the rising costs of health insurance, the most important strategic decision that any employer can make is to keep open the lines of communication with employees.

Any changes to a company's insurance offerings should be made only after discussing the move with the people it will affect the most--the employees and their families. By keeping the workforce involved in the decision-making process, eliciting feedback and constructive input and ultimately explaining any coverage changes, employers will benefit from more satisfied and engaged employees. as well as a more affordable and efficient health insurance program.

Mark C. Nixon is president of Royal Oak-based Allied Group Insurance Services of Michigan, a member of the Detroit Regional Chamber.

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