Small Business & Health Insurance: What You Need To Know

Health care is a layered and controversial subject. Most Americans rely on their place of business to provide for their medical care. However, health insurance is a difficult topic for small business owners. Many small business owners face the challenge of providing adequate and affordable health insurance to their employees.This is particularly difficult because small businesses are automatically charged higher rates than larger companies because they enroll so few people. The continually rising cost of healthcare makes the task of insuring employees particularly difficult for small businesses to handle.

For now, most small businesses are not required to offer health insurance, but there are insurance regulations in certain states. However, offering health care benefits will do more than keep up with regulations; it will attract new employees and help reduce turnover. Besides, many small businesses can seem like a second family to owners and employees alike. A caring business owner wants to provide for his or her employees as well as possible without going bankrupt. The key to providing health insurance is choosing the best type of policy possible.

States regulate health insurance providers, but there are federal laws protecting small businesses from discrimination. A provider, for example, may not deny coverage to a small business because of a health condition or illness of any employees or their dependents. The Employees Retirement Income Security Act of 1974 (ERISA) established federal regulations for self-insured health plans, should small business owners choose to insure themselves. However, most small businesses do not opt to self-insure.

Types of Health Insurance Plans for Small Businesses

The National Association of Insurance Commissioners (NAIC) has compiled information on different types of insurance plans to help small business owners choose the best plans for their employees. Major medical plans include Indemnity plans, Health Maintenance Organization (HMO) plans, Preferred Provider Organization (PPO) plans, and Point of Service (POS) plans.

Indemnity plans are major medical plans that allow patients more freedom to choose their physicians than some others. This plan usually has a deductable the insured is responsible for paying before the insurance company begins making payments. Once the deductible is paid the insurance covers a predetermined percentage of the medical expenses, typically 80 percent.

HMO insurance plans do not offer the same flexibility that Indemnity plans do. HMOs require the insured to choose a preferred care provider (PCP) from a list of approved providers or network. The PCP chosen by the insured is responsible for all of the patient's care. Seeing a doctor outside of the network is not covered under an HMO, or it is covered at a rate much lower than physicians in the network. If a patient needs to visit a specialist, the preferred healthcare provider will need to issue a referral in order for the insurer to honor any claim made by the specialist.

PPO plans offer more flexibility than HMO plans in choosing a physician. Preferred Provider Organizations establish contracts with doctors and hospitals. People who have PPO insurance plans are allowed to visit the doctors and hospitals that they choose, but they will pay more for using someone outside of their preferred provider network.

POS plans are a mixture of PPOs and HMOs. Point of Service plans require the insured to choose a PCP much like an HMO. However, they are allowed to pay more and see a doctor outside of the network. The singular difference is that the insurance company will pay for an out of network visit if it is the result of a referral from the primary care physician.

Choosing a Health Insurance Provider for Your Small Business

Part of choosing a health insurance plan is choosing a provider. Only negotiate with licensed professionals and look for agents who have experience working with small businesses. Make certain to speak with several agents to ensure that the best possible rate is negotiated. Always ask the agent to explain the insurance rates for the past five years as well as the differences between the types of plans the agent has to offer. An agent who is unwilling to answer questions should not be trusted to handle your accounts.

When choosing an insurance agent and plan, ask other businesses about the experiences they have had with their agents and insurance companies. It is also important to discover what the employees need from their health insurance policies. Have a meeting and allow employees to address their concerns. Take into account the demographic of your employees and what their medical needs may be.

Health Insurance Requirements for Small Business

State governments regulate insurance plans for small businesses. Different states require different levels of coverage, so it is important to be aware of state regulations. States also regulate premiums an insurer is allowed to charge by determining the methods used to calculate premiums. This may be done by with a community rating or by employee characteristics such as health, number of smokers, etc. There is little that a small business can do to control insurance premiums, but there are some choices that employers do have to reduce costs.

The type of plan a small business uses is the best way to control costs. For example, HMOs are usually cheaper than other major healthcare insurance plans. PPO insurance plans are more expensive than HMOs, but they are less expensive than Indemnity plans. Employers also have control over certain aspects of insurance policies like deductibles, copayments, lifetime medical coverage, maximum out-of-pocket limit, and other health coverage that may have an impact on premiums.

Deductibles are the best way for employers to lower insurance premiums. Normally deductibles range from $50 to $250. However, there are some larger deductibles available such as $1000. These are used for "catastrophic coverage", but the higher a deductible is the lower the insurance premium will be. The same is true of copayments for PPO or POS insurance policies. Higher copayments will lower the insurance premium. It is up to the employer to determine the best deductible and copayment for employees and the business.

Lifetime medical coverage is the amount used to cover an employee over the course of his or her life with an insurance policy. The typical recommended amount is 1 million dollars to cover serious health issues. The maximum out-of-pocket limit is the maximum amount that a person is supposed to pay in a year for healthcare expenses.

Many companies offer other forms of healthcare coverage to their employees such as dental or prescription drug benefits. These benefits greatly increase employee morale and welfare, but every additional health benefit will increase the cost of the premium. If employees need added benefits it may be wise to increase the amount of insurance cost that is transferred to employees. The practice of transferring some of the cost of insurance to employees is a typical business practice that usually ends up saving money for both the business and the insured employees.

Small businesses can do more than provide health insurance to their employees. Educating employees about healthy lifestyle choices and encouraging healthy diets and activities will greatly enhance the health of workers. Healthy workers may do more than help lower premiums; their attitudes and productivity could increase as well.

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