When it comes to buying group health insurance for a small business, there is strength in numbers. And, big numbers have traditionally gotten the best deals. According to The Wall Street Journal, in 1999, 70% of Americans obtained coverage through their employers. Many of those employers are large companies with strong-arm power at the insurance bargaining table. As a small-business owner, however, there is no reason to feel left out.
has all the tools you need to find the highest quality coverage at the best possible price.
Small-group refers to the number of employees in a given company. It can be as many as 100, but is most often two to 50. In this market, health insurance prices have traditionally been based on two factors:
- Projected cost of medical services in a given geographic area
- Projected utilization of services
Cost projections are fairly stable across the country. But insurance companies estimate utilization of services probability on factors ranging from the medical history of your employees and their dependents to age and gender. These details affect plan premiums to you and your employees. If a member of your staff is considered a greater risk the group will usually pay a higher premium for insurance coverage.
The majority of small-group health insurance companies use a process called underwriting. An underwriter analyzes risk factors (including the medical history of each individual) to estimate potential claims and determine a group's insurability. The insurer's goal? To offer coverage at a fair price and to ensure adequate income to pay future claims and expenses.
Regardless of whether you are a small company or a Fortune 500 giant, you want to make sure you are getting your money's worth out of a health plan. It's important to weigh the pros and cons of each choice when selecting a plan. While premiums vary among different carriers, recognize that there can be substantial differences in the benefits provided and in the amount your employees must pay out-of-pocket for services.
"Managed care" - an umbrella term used to describe several types of cost containment models -- is a common choice for small groups. Of the Americans who obtain health care through their employers, 70% are enrolled in a managed care plan. Whether PPO, HMO or POS, managed care plans share some of the same basic characteristics:
- Comprehensive health care services offered through arrangements with selected doctors, hospitals and providers
- Financial incentives for recruiting members and convincing them to stay within the network
- Formal programs for quality assurance and utilization review
Health Maintenance Organizations (HMOs) offer health care in certain geographic areas. Members of the plan agree on a set number of comprehensive services for an affordable monthly premium. Generally, these plans have no deductibles and minimal copay. HMO participants must use the plan facilities and health care providers in order to be covered by the HMO. However, out-of-network emergency care is usually covered.
There are several types of HMOs. In the Staff Model, doctors and other providers are usually directly employed by the HMO. Members must visit these providers at designated facilities, medical centers or offices. The Independent Practice Association (IPA) Model allows contracts with physicians in private practice or with associations of independent physicians. In the IPA model, plan members may use the offices of medical groups or private physicians as long as they are part of the HMO plan.
Think of it this way: An HMO is an organization that may be housed under one roof or many local offices. All participating providers are bound by the HMO guidelines, and all plan members must stay within the listed providers if they want their non-emergency health care to be covered by the plan. In addition, HMO members must choose a primary care physician. This plan doctor is in charge of all health care decisions and recommendations for the patient.
A Preferred Provider Organization (or PPO) usually contains groups of hospitals and providers that contract with employers, insurers, third-party administrators and others to provide health care services to covered persons and to accept negotiated fees as payment for those services. In plain English: A PPO usually has a broader base than an HMO, and feels more like old-fashioned Fee-for-Service plans to participating plan members. The cost is typically much lower than Fee-for-Service, however, because plan providers accept discounted fees. Unlike HMOs, PPOs allow plan participants to go outside the network and still receive coverage, although the benefits will be more limited out-of-network.
A POS is an HMO with indemnity-like out-of-network benefits. The patient chooses to seek treatment in-network or out-of-network at the time they need the service. POS plans generally cost more in monthly premiums than straight HMOs, but they allow the flexibility to go directly to a doctor other than the primary care physician and to consult specialists without referrals.
Fee-for-Service is the conventional form of health insurance that enables employees to choose their own physicians, specialists and hospitals. Most plans require that members meet a set deductible as well as a coinsurance payment. Insurers pay a percentage (usually 80%) of covered "reasonable and customary" service charges. (These rates are based on comparisons of other local providers in the same area.) Employees pay the remaining percentage for covered care, as well as charges over the "reasonable and customary" level. Different plans vary, with all Fee-for-Service plans give employees complete freedom to select any medical care provider.
For many years, Fee-for-Service coverage commanded star billing in employee benefits packages. One reason was that in the past, Fee-for-Service coverage usually did not include any cost containment provisions. The major advantages? Freedom for the consumer to choose providers and few caps on expenditures. Today, however, many Fee-for-Service plans also offer a variety of cost containment features. These features can hold down costs for the insurance company and the business owner, but the consumer may end up feeling restricted when he or she uses the plan services.
In addition to traditional forms of health coverage, you might consider several other insurance products ...
Think of what might happen if you were struck with a severe illness or disability. As a business owner, if you don't receive benefits for this extended work absence, your family and your entire company will suffer. Disability income insurance is an excellent ace in the hole. It provides you with an income if you become sick or injured and unable to work. The funds paid are not specified for medical expenses--you may use them however you see fit. You can provide coverage for your employees, too. Some policies include special features, like:
- Key-person insurance to protect a firm against the loss of income resulting from the disability of a key employee.
- Recovery benefits that pay after you return to work full-time, and are re-establishing a customer or client base.
- For jointly-owned businesses: A disability buy-out policy disburses funds for one partner or business entity to buy a disabled partner's share of the company
Most of us know about the kind of health insurance that pays for hospital bills and doctor visits. Long-term care, however, offers the assistance you might need if you have a chronic illness or disability that leaves you unable to care for yourself for an extended period of time. You may receive long-term care in a nursing home or in your own home. This may be used to help the aged, as well as young and middle-aged people who have been injured or have suffered a debilitating illness. As with other insurance policies, you pay a set premium that offsets the risk of a much larger out-of-pocket expense.
Under a four-year pilot project, medical savings accounts (MSAs) are available to employees of small businesses (50 or fewer employees), as well as self-employed individuals. An important note about MSAs: Participants must also have coverage under a qualifying high-deductible health plan.
MSA contributions are tax-deductible. Fund withdrawals to pay for qualifying medical expenses are not taxed; however, withdrawals for any other purpose are taxed, and subject to an additional 15% penalty. MSA balances carry over from year to year, and the interest earned is not taxable.
When you purchase insurance, you are buying the insurer's promise to make the payments specified in the policy if you incur covered medical expenses. To fulfill this promise, the company must be willing and able to pay the claim. How can you be sure your chosen insurer is solvent? The best way to investigate a company's ability to pay claims is to check out its financial stability.
If you're not providing health coverage for your employees because of the high cost, consider a health-care savings program as an affordable alternative to traditional insurance. These programs use the same types of provider networks that insurance companies do, negotiating prices and passing on the savings to their clients. Some also maintain escrow accounts to pay participants' medical bills.
Health-care savings programs can be used as a stand-alone benefit or in conjunction with traditional medical insurance in a way that can reduce premiums. A key element of such programs is teaching participants how to be savvy health-care consumers and get the best rate for the services they need.