Sunday, March 29, 2009

While subsidies will help small businesses, understanding the true costs of health insurance can help firms save money

Should small businesses get subsidies to offset the costs of providing health benefits to their workers? That's the suggestion of the Health Reform Dialogue, who completed a report on Friday in Washington, D.C.

According to Jeffrey Young, a blogger/writer for The Hill, the coalition of special interest groups favors tax incentives for small businesses. While tax incentives could increase the capability of business owners to provide these benefits, a more important need is to educate them on the way health insurance professionals provide a smoke screen on costs.

For years, the health insurance industry has successfully targeted the human resource managers of small companies with misinformation about the need for increasing premiums. If more companies had their chief financial officer or accountant review their claims to premium ratio, they would question the need to pay more in premiums every year.

For most, a small company typically has a 30 percent ratio of actual claims paid for their premium dollar. That leaves most insurance companies with 70-percent of each dollar paid out to pay for its administrative cost and profit. As most insurance companies usually allocate 20-percent for the administrative cost, that leaves most carriers with a 50-percent profit.

With the focus on the rising costs of health benefits, business leaders must educate themselves on the terms of their policies. By taking the time to understand these terms, businesses can take the upper hand on lowering the costs of their health benefits for their workers.

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