Part II. Group Health Insurance for Small Businesses
Did you know that over 50% of Americans rely on their employer for health insurance, and yet 25% of business owners are uninsured? Small businesses should seriously consider providing health insurance coverage for their employees. Why should the small business owner deal with the hassle and cost of picking a plan to cover their employees? Well, there are several benefits, both to the owner and their staff.
Group health insurance coverage, which applies to most small businesses, require only basic demographic information of the people to be covered to determine premiums and eligibility, as opposed to the detailed personal medical history required under individual policies. Neither you nor your employees are penalized for current or prior health problems with a group plan.
Small businesses health insurance plans could provide tax credits, potentially up to 50% of the employer’s contribution toward employee premiums. In addition, the business can write-off the health insurance premiums as a deductible expense on the yearly tax return. Employees can also pay their portion of the premium through pre-tax payroll deduction, which saves them money. Health insurance is significant concern for staff and job seekers. Providing health insurance is one way to attract the best and brightest applicants, while also increasing job loyalty and minimize employee turnover. Finally, providing health insurance actually safeguards the business’ bottom line by keeping your staff healthy and productive, and provides a sense of job security.
So how does the small business owner go about the process of providing coverage for their employees? There are four main ways for a small business to obtain health insurance:
- Contact small business health insurance companies directly;
- Team up with a purchasing alliance;
- Use the state health insurance exchange;
- Check with your professional association (e.g. WSCA or AMTA) to see if they offer any group plan options.
Additionally, there are four main coverage options, or plans, to consider:
- Health Management Organizations (HMO’s) typically offer very limited benefits to covered members with the intent of keeping premium costs down. These plans are good if those being covered are healthy, on a tight budget, and are OK with seeing only those providers within the plan’s network. The biggest drawback is that the covered employee could be forced to pay a lot of money out of pocket if they require care by medical specialist or other provider outside the plan’s network.
- Preferred Provider Organizations (PPO’s) tend to be higher cost, premium-wise, but are far more flexible with regard to providers covered by the plan. These plans are good if your employees want to be able to choose who they see for treatment, need specialists for a specific condition, and are comfortable spending more for coverage. PPO plans commonly carry a deductible that must be satisfied by the covered person each year, and usually have higher out-of-pocket cost per visit than the HMO plans.
- Point of Service Plans (POS) are a blend of the HMO and PPO plans. Referrals by a primary care physician are still required to see a specialist, like HMO’s, but it costs the covered person less to see a specialist outside the plan’s network, similar to PPO’s. Premium expenses for POS plans usually fall between HMO’s and PPO’s.
- Exclusive Provider Organizations (EPO) are the exact opposite of the HMO/PPO hybrid. Those covered by an EPO are encouraged to seek care by a provider within the plan’s network but referrals are not required if they want to see a non-network specialist. EPO’s can be a cost effective option for small business who employees tend to stay inside the provider network but still want the flexibility venture beyond it.
Since the concept behind group coverage for small businesses is for the business to subsidize some of the premium costs for its employees, it’s important to understand what the costs of coverage are to the business and its employees. Typically, employers will pay at least half of their employees’ monthly premiums, although many companies pay up to 80% since these expenses are tax deductible and great for boosting employee morale. It all comes down to how much the business can afford to spend in providing coverage for its employees. So the employer needs to take a very close look at the business’ cash flow and other financial data when making this decision.
In summary, some things to consider when choosing a plan for your small business:
- What’s being covered?
- What kind of plan are you considering?
- What is the health care provider network?
- What are the premiums, deductibles, copays, and co-insurance amounts?
- How are the costs of premiums shared between the employer and employees?
- What benefits do your employees absolutely need?
Having a successful business is more than just being an expert your field. Give yourself peace of mind, take a step back and look at the big picture by being proactive with respect to financial matters including benefits offered to attract the best talent. Your business will be what you make of it.