Small Business Health Insurance

Providing health insurance for employees – by far the single most expensive benefit offered by employers – is one of the greatest challenges many small businesses face today.  As business owners know, health insurance is extremely important to most employees and is therefore a very powerful benefit in recruiting and retaining the best workers.  Cost and availability of health insurance are the key issues.

 

Small group health insurance provided by insurers is regulated by the state of Missouri.  However, federal law mandates that an insurer cannot deny coverage to a small business due to the health status or illness of its employees or their dependents.  In addition, self-insured health plans (where an employer insures itself), are regulated by a federal law called ERISA (Employees Retirement Income Security Act of 1974).  It is rare for a small company to self-insure its health insurance. 

 

Small business owners are not required to offer health insurance to their employees.  If an employee chooses to retain their own individual coverage, the employer must make a payment to that employee equal to the defined contribution being made to other employees for their group coverage.

 

What Kind of Health Insurance Best Fits Your Business?

 

To help small business owners determine what kind of health insurance best fits their employees’ needs and their company’s budget, DIFP provides the following information.

 

Types of Health Coverage

 

Small businesses commonly offer several different types of health insurance. Major medical plans typically cover a comprehensive array of healthcare needs, including doctor visits, prescription drugs and hospital care. These benefits can be delivered in several different ways:

• Indemnity plans – These major medical plans typically have a deductible – the amount you pay before the insurance company begins paying benefits. After your covered expenses exceed the deductible amount, benefits usually are paid as a percentage of actual expenses, often 80 percent. These plans usually provide the most flexibility in choosing where to receive care.

• Health Maintenance Organization (HMO) plans – These major medical plans usually make the insured choose a primary care physician (PCP) from a list of network providers. A PCP is responsible for managing your healthcare. If you need care from any network provider other than your PCP, you may have to get a referral from the PCP to see that provider. The insured person must receive care from a network provider in order to have the claim paid through the HMO. Treatment received outside the network is usually not covered or covered at a significantly reduced level.
• Preferred Provider Organization (PPO) plans – In these major medical plans, the insurance company enters into contracts with selected hospitals and doctors to furnish services at a discounted rate.  As a member of a PPO, you may be able to seek care from a doctor or hospital that is not a preferred provider, but you will probably have to pay a higher deductible or co-payment.

• Point of Service (POS) plans – These major medical plans are a hybrid of the PPO and HMO models.  They are more flexible than HMOs, but do require you to select a PCP.  Like a PPO, you can go to an out-of-network provider and pay more of the cost.  However, if the PCP refers you to an out-of-network doctor, the health plan will pay the cost.

Health Savings Accounts (HSA) and High Deductible Health Plans (HDHP)

 

A Health Savings Account is not health insurance. Rather, it is a savings plan that offers an alternate way for consumers to pay for their healthcare. HSAs enable you to pay for current health expenses and save/invest for future qualified medical and retiree health expenses on a tax-free basis. 

In order to open an HSA, an individual must be covered by a High Deductible Health Plan (HDHP). Sometimes referred to as a “catastrophic” health insurance plan, an HDHP is an inexpensive health insurance plan that generally does not pay for the first several thousand dollars or more of healthcare expenses (i.e., the “deductible”) but will generally cover health expenses after that. 

For 2006, in order to qualify to open an HSA, your HDHP minimum deductible was at least $1,050 (self-only coverage) or $2,100 (family coverage). The annual out-of-pocket expense (including deductibles and co-pays) for 2006 could not exceed $5,250 (self-only coverage) or $10,500 (family coverage).

An Overview on Costs

The average premium for small group health insurance was $311 per month ($3,730 per year) per employee and $814 per month ($9,770 annually) for family coverage, according to a survey conducted in 2006 by America’s Health Insurance Plans (AHIP).  AHIP surveyed 21 of its member insurers that offer coverage to more than 650,000 small groups (defined as firms with 2-50 employees) that employ 4 million workers and their 3.2 million dependents.

• Average costs vary by state. To look up your state, go to www.ahip.org or www.statehealthfacts.org

• Types of coverage:
  -57% of the small group coverage was for PPOs, while 39% had HMO coverage. Approximately 4 percent of enrollees had an HSA with a qualifying HDHP.

• Deductibles:

  -For PPO plans, individual deductibles averaged $849 with annual out of pocket limits of $2,700 and co-payments of $21    for in-network physician visits.

  -HSA plans had an average deductible of approximately $2,220 and average annual out-of-pocket limits of approximately    $2,800.

Tips & Considerations Concerning Health Insurance

To help you choose which health insurance policy best fits the needs of your employees and your business’ financial resources, here are some important factors to consider.

• Before purchasing any insurance, interview several licensed insurance agents who specialize in serving the health insurance needs of small businesses. 
  • When reviewing the health insurance options presented, make sure you compare the costs of equivalent coverage from several insurers to be sure you’re getting the best deal.
  • Ask about premium cost increases over the past 5 years.
  • Talk to other small business owners to find out about their experiences with different kinds of health plans and insurers.
  • Health insurance is complex; don’t hesitate to ask lots of questions before you decide on a health plan. If you fail to get the answers you need from one insurer, contact others.
  • If you shop for insurance online, make sure your online source has approved Internet privacy protection.

• Before selecting a health plan, it’s a good idea to survey your employees to find out what kind of coverage is particularly important to them.
  • Know your employees. For example, if a number of your employees are young and married who may want to have children, pregnancy-related coverage will likely be extremely important to them. Other companies may have mostly young employees who rarely see a doctor.
  • Remember, small business group health plans are not standardized, and benefits may vary greatly from one plan to another.  In Missouri, group health insurance must cover childhood immunizations, mammograms, pap smears, prostate and colorectal screening and diabetic supplies. 

• Understand the factors that can affect the cost of your small group health premiums. 
  • The premium rates an insurer can charge a small business are set in a range by state law for employers offering plans with the same benefits design and which have similar “case characteristics” (e.g., age and sex of employees, geographic location of the business and other objective information.)  In Missouri, insurers may calculate premium rates based on age, sex, industry, geographic location, family composition and overall health of the group.

Some health insurance cost factors are clearly outside of your control; other cost factors can be managed.  For example:

• The type of health plan you select.  For example, HMOs are typically less expensive than PPOs; both are less expensive than indemnity plans.

 

• The specific benefits design you select.  For example, you can choose the following:
  • The level of the deductible – A general rule of thumb: the higher the deductible, the lower the premiums. (The deductible is the amount the employee must pay out-of-pocket before payments from the insurance company begin.) Typical deductibles might range from $50 to $250, though there are some policies with much higher deductibles (e.g. $1,000 to $5,000) for “catastrophic” coverage. You’ll need to decide what size deductible works best for your company and employees.
  • The level of co-payments – Similarly, selecting a PPO or POS health plan with higher co-payments (e.g., the out-of-pocket amount the employee must pay towards a doctor visit or medical services) can reduce premiums.
  • The lifetime medical coverage – This is the maximum amount covered by the health insurance policy per individual over the course of his/her life.  At least $1 million is often recommended to cover serious illness.
  • Maximum out-of-pocket limit – Note that many plans have a cap – a maximum limit on the amount of out-of-pocket expense that an employee is expected to pay for healthcare in each calendar year.
  •  Other health coverage – Many employers choose health insurance plans with prescription drug benefits; some include dental insurance benefits.  Note that every benefit you add will raise the cost of your premiums.

 

• The amount of health insurance costs you transfer to your employees. 
• Most small businesses ask their employees to bear a portion of the cost of their health insurance premiums for themselves and their dependents.
• Premium only plans allow for employee paid group health insurance premiums to be paid with pre-tax dollars.  Under these plans, employees may choose to pay for qualified benefit premiums before any taxes are deducted from employee paychecks.  The contribution can be a percentage or a specific dollar amount.

 

• Educate your employees about your health plan coverage and healthcare. 
  The more they understand exactly what is – and what is not – covered and follow the right procedures, the better you’ll be able to manage your premiums. 
  • Be sure your employees understand provisions in your plans that pertain to the need for pre-admission certification before entering a hospital or using an emergency room.
  • Encourage employees to ask their doctors about fees and the cost of procedures and to check their doctor and hospital bills to be sure there are no errors.
  • When appropriate, they should seek second opinions before complicated or expensive procedures or surgery.
  • Encourage employees to engage in healthy habits.  Provide information about exercise, weight loss, smoking cessation, etc.

 

• Know your rights with health insurers by checking with the department
  • Small group health plans are typically required to treat all of your eligible employees (generally full- or part-time employees who work at least 30 hours a week) equally and may not discriminate against those who are ill or become ill. (Note, however, that small employer plans can exclude coverage for pre-existing conditions for up to 12 months – or whatever is specified by the plan – after an employee’s enrollment date.)

 

• Explore joining a trade association for small businesses in your industry operating in your state.
  • By joining a trade association, you may gain entry into group health insurance that is more affordable than a plan you could purchase on your own.
  • Missouri allows small and large businesses to pool together to purchase health insurance for their employees, but the plans must be underwritten and rated as a single employer, uphold a uniform health plan design, guarantee issuance to all members and comply with all other federal and state insurance requirements.

 

• Consider individual health insurance.
  • Many insurance companies offer individual health insurance policies.  You should compare several policies with comparable benefits to see which you prefer.
  • You may be able to get more affordable individual health coverage through a trade association or small business organization in your state.

 

• Do some other research on the insurer offering the health plan you’re considering. Cost is not the only factor you should consider.
  • Ask about the insurance company’s customer service policies, whether there’s a toll-free number and what their grievance procedures are.
  • Find out how many small businesses they insure in your state, and ask for references for small firms in a similar line of business.
  • Look into the complaint history of the insurer you’re considering.  You can find that out visiting www.insurance.mo.gov or calling the Missouri Consumer Insurance Hotline at 1-800-726-7390.
  • You may also want to check on the financial strength/stability of the insurer offering the health policy.  A number of independent organizations rate insurers, such as A.M. Best Company, Moody’s Investor Services, Standard & Poor’s, and Weiss Ratings, Inc.

 

• Understand COBRA and other federal regulations for small employers offering health plans.
  • Under federal and state law employers that have a group health plan are required to offer their employees (and their dependents) the option of continuing their membership in the group plan at their own expense after they leave their job.
  • Missouri requires an employer to alert terminated employees with a written notice that specifies the date on which their employee benefits will be cancelled and the employee’s rights to continued coverage.
  • The Federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) guarantees the rights to group health insurance for employees who have pre-existing medical conditions. It also prevents insurers from charging higher rates to individuals in the same group based solely on their health status.

 

• Take advantage of the tax benefits available to your company.
  • Businesses can generally deduct 100 percent of the premiums they pay to qualifying health plans for their employees.  Be sure to discuss this matter with your accountant or tax advisor.

 

• Be wary of medical discount cards, which offer a reduced fee for doctor visits or other medical services.
  • Discount cards are NOT health insurance plans, but they are regulated by the state insurance department. 
  • Some discount cards have been the subject of numerous scams in recent years, so be sure to check these out carefully.

 

• Always take the time to protect your business against being scammed by fake health insurance companies. 
  • Before you purchase any group health plan, make sure the insurer offering the plan is a legitimate company licensed to sell health insurance in your state.  It’s very easy to protect yourself and your employees – just call your state insurance department and check out the insurer or visit your state’s insurance department Web site.
  • Be particularly on your guard if one insurer offers you a health plan that’s significantly cheaper than other plans with comparable benefits.