Gary Locke recently wrote an article for the Wall Street Journal partially addressing the effect of rising health care costs for businesses. In the article Locke points out that companies spent about 1.2 % of their payroll on health insurance, and that by 2006 it was up to nearly 10%. Furthermore, studies have shown that over the years the excess health-care costs were directly related to both job and revenue losses for numerous companies throughout America.

The companies typically hit the hardest in cost are small businesses who pay roughly 18% more per worker than larger companies for the same health insurance policies. This is a result of having a smaller risk pool of employees to dilute significant insurance claims. So what can business owners do to help keep the cost of providing health insurance down, and their employment rate up?

Employers should consider creating a Health Reimbursement Arrangement (HRA). HRAs allow employees to purchase their own individual health insurance, while the employer is able to benefit from the lower individual rates, as well as a fixed cost. Essentially, an HRA permits a employers to have a fixed dollar amount to be reimbursed to their employees for health related expenses; for example, monthly premiums, prescriptions, and doctor visits.

There are also numerous benefits to having an HRA. The contributions are tax-deductible, and the employer is able to afford his employees the ability to find a plan that is right for them. Furthermore, it encourages people to be more cognizant of their medical costs, and develop an understanding of how healthy living directly correlates to the cost of their insurance.