Most employees consider health coverage the most important employee benefit. It is an attractive benefit for an employer to offer, since the cost is tax deductible, and surveys have shown that offering health insurance is good for increasing retention, improving recruitment and attitude, and lowering absenteeism. However, not all insurance plans are an equally good bargain for a business. Below are some guidelines for choosing a health plan that will work well for your company.
What Type of Health Insurance Should My Company Offer?
Traditional health insurance is the choice of most small businesses. Its biggest advantage is the flexibility it provides employees, allowing them to visit any doctor or hospital. However, it is sometimes more expensive to offer than managed care plans. Some managed care plans offer a “fee for service” option that mimics the freedom of traditional insurance. Although it allows greater choice, the co-pays and deductibles that employees pay can be very high. Before looking for an insurance broker or evaluating plans yourself, you should think about what your business wants in an insurance plan and create a list. The list may also include such desires as dental, mental health, or maternity coverage, and whether your company may want to provide insurance for employees’ dependents.
Should My Business Use an Insurance Broker?
Most small businesses purchase group health plans from a broker. Brokers usually offer plans from five to fifteen insurers, and can be a great help in comparison shopping. When choosing a broker, it is often best to find one that has experience in dealing with businesses of a similar type and in the same industry as yours.
Getting a recommendation for a good broker can also be important. Not all brokers are ethical. Insurers will only issue one quote to a business seeking coverage, so some brokers “paper the market” by getting bids from almost all available insurance providers. This effectively locks your business into working with the broker. Some brokers also may offer a computerized search that supposedly compares all policies on the market, but which is rigged to recommend only those that the broker sells.
Finding a Better Insurance Deal
If your businesses has difficulty finding affordable coverage directly from insurers, you may want to contact your state department of insurance to learn about small business group health providers in their area. Small businesses also can join an association that offers group benefits for their members. However, before taking advantage of any such plans, your business should scrutinize them as carefully as any other plan it might evaluate.
Evaluating a Policy
Look to the list of policy criteria you created. A plan should meet those goals as closely as possible.
Cost. The next step is to look at cost — to the employees as well as to the company. Look at the cost of the plan, the deductibles, and co-insurance costs. How much of the plan will the company be able to pay for. If it can’t pay for the entire cost, how much will the employees have to contribute? Is it in line with their salaries? For example, some companies offer health insurance at rates that are wholly out of line with their employees’ means. For example, an employer might as well not offer an employee insurance if the employee must pay 100 percent of a $250 per month policy on take-home wages of $1200 per month. Also, the employer should calculate whether deductibles and co-insurance exceed what an employee can afford on his or her salary. An employer should be wary of any plan that requires employees to pay for more than 25 percent of treatment costs, or which charges co-insurance for medical expenses in excess of $10,000.
Coverage. Next, the employer should read the fine print about what types of conditions are covered. Some policies will limit coverage to specific conditions, or cover them only up to a ridiculously low maximum payment. Coverage for long-term illness and pre-existing conditions are areas where these low limits are often seen. The total coverage for the policy should be at least $1 million, since costs for treating catastrophic illnesses can easily reach this amount.
Employers should steer clear of hospital indemnity policies and dread disease policies. Hospital indemnity policies pay a certain amount for each day the employee is in the hospital, usually at a level insufficient to cover the typical daily cost of a hospital stay. Dread disease policies cover particular illnesses, but tend to be far more expensive than is warranted by the likelihood of contracting one of these diseases. They also are wholly inadequate to meet the needs for general coverage.
Reimbursement. Similarly, checking reimbursement levels for various procedures can reveal whether coverage is far less than the average hospital or doctor charge. Employees undergoing these procedures will be left owing substantial sums if this is the case. If in doubt, check with a physician to find out whether certain coverage amounts are reasonable.
Restrictions. Are there restrictions that do not fit with the business’s operations? For example, one familiar restriction among HMOs is drastically reduced coverage or no coverage if an employee has to seek medical or hospital care in another state. If your business’s employees travel extensively, such a policy would be inappropriate.
Investigating the Insurer
Investigating the security of an insurance firm, hundreds of which have gone out of business in the past five years, is only the start in checking out an insurer. It can be done quickly and easily by examining the ratings books published by one of five agencies - A.M. Best, Duff & Phelps, Moody’s, Standard & Poor’s, and Weiss Research. Your business should examine an insurer’s rating both over time and across services, since insurers may be strong in some areas and weak in others.
An equally important area is the insurer’s willingness to pay claims and, if it is an HMO, its willingness to allow access to specialists and services like mental health counseling. One HMO was fined heavily because of its practice of requiring a faxed authorization before allowing inpatient mental health treatment, but providing only one dedicated fax machine for this service for the entire state, and keeping the machine off the hook. Unfortunately, these criteria are much harder to assess than financial health, since there are no ratings available. Brokers may have the best knowledge about the claims history of an insurer. In addition, each state has a department of insurance which can provide information on the number of complaints lodged against a particular insurance company.