Self Employed Web

Finding health insurance that won’t make your company sick

Posted on Friday, September 2nd, 2005 by

The task of choosing a health insurance policy for you and your employees can be daunting. Small business policies come with widely varying prices and a range of options for coverage that sometimes seem almost impossible to decipher. Worse, even the cheapest policies can seem absurdly expensive. But many of you no doubt feel that a robust health insurance plan is necessary to attract and retain a talented group of employees. Many of you also probably feel that it’s just the right thing to do. You care for the people who work for you and want to be sure they’re protected in the event of accident or illness.

Fortunately, with a little work, you should be able to find a plan that protects the health of your workers while not endangering the health of your business. Given the fact that you can take a tax deduction for premiums paid to qualifying group health plans, the right health insurance plan may even seem like a bargain.
Well, almost.

Regulatory issues
Government regulations differ from state to state. That said, your company should be eligible for small group coverage if it has at least two full-time owners or workers and it’s a legitimate business entity (with a business license or articles of organization).

Top Five Health Insurance Providers*

Provider Revenues 2004 (in billions)

UnitedHealth Group 
Phone: 952-936-1300
Fax: 952-936-1949
unitedhealthgroup.com
37.22
Wellpoint Inc. 
Phone: 317-488-6000
Fax: 317-488-6028
anthem.com
34.03
Aetna 
Phone: 860-273-0123
Fax: 860-275-2677
aetna.com
21.13
CIGNA 
Phone: 215-761-1000
Fax: 215-761-5515
cigna.com
17.96
Humana Inc.
Phone: 502-580-1000
Fax: 502-580-3639
humana.com
13.32
*Note that the Blue Cross and Blue Shield Association (BCBSA) represents more than 40
independent Blue Cross and Blue Shield health plans operating throughout the U.S. with combined 2004 revenues in excess of $200 billion. The BCBSA can be reached athttp://www.bcbs.com.Sources: Insurance Information Institute (www.iii.org), Standard & Poor’s, and Securities and Exchange Commission (SEC) filings.

The percentage of your employees participating in your company health plan also must meet the minimum set by your chosen insurance provider. Some regulations dictate how much of an employee’s premium the employer must pay, usually around 25 to 50 percent. You might also choose to extend coverage to employee spouses or dependents, but that’s usually not required.

Once you check your state’s regulations—try the state insurance commissioner’s office—give some thought to a few questions that will affect your final choice. Among the crucial issues: Who will be eligible for coverage? Should you include part-time employees? Will there be a waiting period for new hires before they qualify for coverage?
Also consider which of these factors matter most to you and to your business:
Monthly premiums. A start-up or a business with modest profits might decide to simply find the cheapest reliable coverage around. A firm that needs to deliver a more robust benefits package to attract and retain employees will consider springing for something more expensive. Either way, you’ll want to keep a sharp eye on what you get for your extra dollars—and you should give careful thought to whether those extra benefits are worth the money to your business.

Out-of-pocket costs. This is the amount you and your workers will end up paying for deductibles and co-payments for a range of services, from drugs to doctor’s visits to hospital stays. A company with a younger staff might save money by choosing a policy with higher out-of-pocket costs, since workers might not need as much medical care. Older workers or employees with health problems might be hard-pressed to meet out-of-pocket costs on some cheaper policies.

Provider options. Here again, the age of your employees might make the difference. A plan that allows patients broad discretion to choose (or keep) their physicians might appeal to older employees. Younger workers might be more flexible.

Indemnity vs. managed care
Health insurance policies fall into two basic categories: indemnity and managed care. Under indemnity plans, also known as fee-for-service plans, the insurance provider will reimburse for all or part (usually just part) of a visit to a doctor or hospital of the patient’s choice. This coverage offers unlimited discretion to the patient, but it is much more expensive than managed care coverage.

That’s why managed care options are more popular. They come in three forms:
HMOs. Health Maintenance Organizations tend to be the least expensive plans around—but there’s a catch. Enrollees are limited to the HMO’s sometimes limited network of providers, and must rely on a primary care physician to refer them to specialists.

PPOs. Preferred Provider Organizations are the most flexible plans. They contract with a network of doctors and hospitals that work at discounted rates. However, patients who are willing to pay a bit more can go outside of that network. Moreover, patients don’t need a primary care physician to refer them to specialists. PPOs tend to be significantly more expensive than HMOs.

POS plans. Point-of-Service plans combine ele-ments of HMOs and PPOs. As with an HMO—and unlike a PPO—enrollees must select a primary care physician who can refer them to a specialist within the plan network. But you also have the freedom to go outside of the network, just as with a PPO.

The devil in the details
Once you’ve decided upon the type of plan that’s right for your business, you’ll have to sort through various policies within each category. You may find options that will save you money without compromising on your primary goals. For example, Blue Cross/Blue Shield of Massachusetts offers a policy called HMO Blue Preferences with small deductibles for certain services and slightly higher co-payments. “Maybe you go from a $10 co-payment to a $30 co-payment for an office visit,” says BC/BS spokesman Chris Murphy. “That lowers the employer’s premiums, but employees still get the quality that Blue Cross/Blue Shield offers.”

In most plans, the equation is pretty simple: the higher the deductible, the lower the monthly premium. In other words: You pay more, your employees pay less. If your employees pay more, then you pay less. You need to decide how much of their health care you can reasonably ask your employees to shoulder. Again, this is a tough decision that is likely to involve an array of considerations and each owner is likely to reach a different conclusion depend-ing on the owner’s industry, the particular mix of employees involved, and the owner’s individual sense of responsibility for his or her people.

Some policies offer riders for supplemental coverage, like eye exams and dental care. They’re often inexpensive—around $8 to $12 per month—and you can offer them as an option to individual employees. “The eye exam option might make sense if you have an employee base that’s getting a little older,” says Sam Gibbs, senior vice president and general manager of eHealthInsurance, an online resource for finding and comparing plans. “Dental riders might make sense for workers with young children.”

Some providers offer extra services—which can be especially useful for small firms without human resource departments. For example, Aetna.com provides information about various medical conditions and different treatments, and helps covered employees track their out-of-pocket expenditures and deductibles. Bear in mind that premiums rise. “Find out how quickly a health carrier has increased rates for small business customers,” says Cecelia Brock, PhD, a consultant with the Service Corps of Retired Executives (SCORE) and president of her own small business consulting firm in San Diego. That information should be available through your insurance agent or directly from the company.

While you’re at it, make sure you buy from a reputable carrier—perhaps a well-known firm such as Aetna, PacifiCare, Blue Cross/Blue Shield, or Health Net. Check ratings with A.M. Best (www.ambest.com) an independent firm that rates carriers’ claims-paying ability. And beware of “defined benefit” health care plans. “If you have a heart attack, a defined benefit plan will pay a flat amount—maybe $10,000—and that’s it,” says Gibbs. “That won’t do it.”

Don’t promise too much
You may wish to provide blue chip coverage to employees and their families—but make sure you can afford to do so. Otherwise, you’ll have to reduce coverage, which can disappoint or even infuriate some employees. “When you start taking things away from people, that’s when you start having employee relations problems,” says Brock.

Whatever coverage you choose, keep your staff informed about their coverage. “Communicate, communicate, communicate,” says Adam Sturtevant, vice president of employee benefits for TD Banknorth Insurance Group in Portland, Maine. “Explain the value of your firm’s health care benefits to employees. That way, they’ll understand what you are doing in return for their contributions to the company.”

True, it can be painful to write those premium checks. Choose your policy wisely, however, and your dollars will buy you happier, healthier, and more productive workers. What’s more, you’ll know that you’re doing the right thing by the people who make your business a success.

Created in January 2004 as part of the Medicare prescription reform law, health savings accounts (HSAs) are sometimes referred to as medical IRAs. These plans are increasingly popular and, according to a May 2005 study by American Health Insurance Plans, more than one million people are now covered under HSA-based health plans. Many insurance companies, local banks, as well as specialized administrators offer HSAs, but be advised, the fees charged to run these plans vary widely. For an online list of the top ten most affordable providers, go towww.hsafinder.com/07-05_1.shtml

How do they work?
Like IRAs, individuals contribute pre-tax dollars into accounts that are tied to a wide range of investment vehicles (savings accounts, mutual funds or, in some cases, stocks). These accounts can accrue interest and roll over any unused balances to the next year, unlike standard Section 125 or “cafeteria” medical benefits plans. These funds can be withdrawn from the HSA at any time, without penalty, to pay for legitimate medical expenses not typically covered by the insurer, such as office visit and prescription drug co-payments, vision expenses, and dental work. To see a list of federally approved expenses, go to www.irs.gov/pub/irs-pdf/p502.pdf

An important note: HSAs can only be used in conjunction with health-insurance policies that have steep annual deductibles—between $1,000 and $5,000 for individuals, or $2,000 and $10,000 for families—but these plans typically cover 100% of expenses once this limit has been met.

Who should look into HSAs?
Those who are self-employed and have been unable to previously afford health insurance will find that high-deductible, HSA-based plans offer significantly lower premiums, and are therefore more accessible, than most HMO and PPO plans. According to HSAFinder.com, a free informational website on HSAs, the average individual who chooses a high-deductible, HSA-based plan over more traditional health care coverage would save an average of $840 during the first year.

Likewise, small business owners who already provide their employees health care, but have seen their premiums skyrocket over past few years, could realize annual savings of between 20% and 60% by switching their employees to a shared-cost HSA-based system. For those businesses that have never been able to afford offering medical coverage to their employees, HSA-based health plans offer a low-cost method of adding health insurance to their company’s benefit package.

What are the costs?
The high-deductible health plans (HDHPs) that partner with an HSA have
premiums that range from $200 to $300 a month, or $2,400 to $3,600 a year, based on the number of dependents. Annual HSA contributions are currently capped at $2,650 for individuals and $5,250 for families. So, a family with high-end premiums that also uses their fully funded HSA to completely pay off their deductible would spend $8,850 for medical expenses in one year. This amount compares favorably to family health insurance costs using more standard health plans, which, according to the Kaiser Foundation, averaged $9,068 in 2003.

What are the advantages? 
For employees and self-employed entrepreneurs, individually owned HDHP/HSAs offer complete portability of their health plans from job to job with no interruption in care. During periods of unemployment or low cash flow, HSAs can also be tapped to pay for monthly medical premiums in addition to routine health expenses. And because the individual, rather than the insurance company, owns the HSA, the funds can be saved up and used for other long-term, medical expenses as well as passed on
to a spouse tax-free after death.

What are the drawbacks?
From the insured’s perspective, funding a HSA may not be feasible because it requires a sizeable amount of liquidity to be effective. Additionally, the federal government has currently capped HSA contributions near the low end of the allowable deductible range, meaning there is still some risk of significant out-of-pocket health care expenditures. Finally, small business owners who force their workers to shift from a HMO or PPO-based plan to a HDHP/HSA without sharing the premium pay-ins risk being accused of cost shifting, which could alienate workers and erode morale.
—Reed Richardson

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