Buyer's Guide
Introduction to Health Insurance for Your Company
Employees consistently rank health insurance as the most important of all their benefits. Not surprisingly, U.S. companies spend hundreds of billions of dollars on health insurance every year.
There's no question that over time, the landscape for company-provided health insurance has changed considerably -- conventional indemnity plans have almost vanished, and consumer-driven plans have widely taken hold. The three most popular varieties of company health care plans offered today are health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point of service plans (POSs).
But as premiums continue to rise, it's becoming increasingly difficult for businesses to manage costs. Small businesses in particular are faced with the tough choice of stretching their budgets to absorb the entire expense or passing some of the burden to employees.
Further complicating the issue is the federal Patient Protection and Affordable Care Act (aka health care reform), which continues to be a hot topic of debate, leaving employers feeling uncertain about the rules around company health insurance plans.
It can be tough to figure out which plan is best for your business. With so many variables at work, it's highly advisable to work with a health insurance agent or broker. These professionals can help you understand current laws and regulations, evaluate available plan options, and find the right solution for your company. And since company health insurance is so important to your employees and such a huge expense for your business, it's worth taking the time to make the right choice.
This BuyerZone Health Insurance Buyer's Guide will walk you through the various types of coverage, describe how to shop for a plan, and give you some tips on getting the most out of your health insurance coverage. We can also put you in touch with health insurance sellers or brokers in your area - free.
Before making any commitments, start by familiarizing yourself with the individual plans available, what they provide, and what costs they’ll result in for you and your employees.
Types of Group Medical Insurance Plans
In the last twenty-plus years, there has been a dramatic shift in employer-sponsored health care. Increased options and cost savings for employers have led the shift away from conventional plans towards HMO and PPO alternatives.
This graph demonstrates that shift in terms of the percentage of covered workers in the United States for each of the main types of plans from 1988 through 2011. (It is worth noting that this breakdown varies considerably in different parts of the country.)
Here is a rundown of how these plans work.
Conventional
The biggest advantage of conventional health insurance is the flexibility it provides employees. Also known as indemnity coverage, conventional health insurance allows individuals to visit any doctor or hospital they want and receive coverage for any treatment covered under the policy. Plan members can go to any specialist without a referral, and the insurance company has no say as to whether the visit is necessary. Unfortunately for people who prefer this flexibility, few employers offer conventional health insurance plans these days.
Cost is the main reason these plans are disappearing. Because there are few oversight or cost-saving measures, premiums for conventional insurance tend to be higher than other plans. Conventional insurance also carries more out-of-pocket expense, since most plans require costly deductibles before coverage kicks in, and co-insurance that leaves the insured responsible between 5% and 20% of each charge.
HMO
Health maintenance organizations (HMOs) were the first alternatives to conventional insurance. By creating a network of doctors and hospitals and implementing cost-saving measures, HMOs are able to control costs better than other plans.Overall, HMO premiums are the lowest of any of the three major plan types.
However, HMOs are also less flexible than other plans. They require members to choose a primary care physician (PCP) from within the plan’s network. This PCP will perform basic health checkups and approve any visits to specialists. HMOs generally only cover the expense of visits to doctors and hospitals that are part of the network. Visits to nonparticipating doctors must be paid directly by the employee.
Referred to as a gatekeeper system, this structure helps minimize costs for employers; though employees who currently use doctors outside the HMO network may be unhappy with having to switch physicians to receive coverage.
PPO
Preferred provider organizations, or PPOs, are now the most popular choice for employer-sponsored health care. A PPO is a collection of physicians and hospitals who agree to provide health care at a reduced cost to PPO members. With this setup, insurance plans can limit health care costs without the restrictions of an HMO.
Most PPOs are similar to conventional health insurance policies, except that PPOs have two different levels of coverage. For visits to doctors and hospitals that are affiliated with the PPO, patients generally pay a low deductible and little or no co-insurance. But visits to doctors and hospitals outside the network require higher payments from the patient.
This structure is designed to control costs by encouraging PPO members to use specific doctors and hospitals that have been designated by the organization as preferred providers.
POS
Also known as open-ended HMOs, point of service (POS) plans combine elements of both HMOs and PPOs. As with HMOs, members of POSs must choose a primary care physician who provides referrals to network specialists. However, POS members are free to visit out-of-network providers without a referral and still receive some coverage. Members who use services outside the network will pay more than they would for in-network services. This increased cost typically involves deductibles and coinsurance.
POS plans are popular with some employees because they provide much of the cost savings of HMOs, but still include some coverage if the member wants to choose a specific doctor.
Finally, a new type of health plan is rapidly gaining popularity: the consumer-driven health plan.
In addition to the plans detailed above, another option has gained momentum in recent years, shifting the responsibility for care (and its resulting cost) to the individual consumer. While this plan has obvious cost benefits to you as the employer, it can be perceived by employees as a less attractive option.
Consumer Driven Care and Health Care Reform
Consumer-driven health care (CDHC) is based on a basic belief that if individuals play more of a direct role in managing their own health care costs, they will make wiser decisions about the use of their health care system.
This idea has been slowly gaining acceptance for years, in part due to the escalating costs to employers of other forms of health insurance. So far, CDHC is more common in very large companies, although smaller firms who do offer them seem to have a higher enrollment rate.
The term "CDHC" can include a wide variety of plans. The most common consumer-driven plan pairs a high deductible health plan (HDHP) with a savings option (SO). The savings option may be either a health savings account (HSA) or health reimbursement arrangement or account (HRA).
The high deductible insurance is meant to cover catastrophic events, while routine and preventative medical care is paid for from the savings option, which may be contributed to on a pre-tax basis by both employers and employees. Some plans even allow any unused amounts in the savings account to be rolled over and used in subsequent plan years.
Because each employee is responsible for more of their own decisions about health care, a key component of successful consumer-driven health care plans is providing a set of tools to help employees understand the complex health care system. While the lower overall costs of CDHCs may seem attractive to budget-minded benefits managers, employee satisfaction can suffer if workers feel they are being left on their own.
Health Care Reform
In addition to the growing number of health plan choices available, companies must now also consider their responsibilities under the new Patient Protection and Affordable Care Act enacted by the federal government in 2010. The law is intended to expand health coverage, control health care costs, and improve health care delivery system nationwide.
Although the majority of the health care act does not go into effect until the year 2014, some portions have already been modified, and others are in force today, so it is a good idea to speak with an insurance professional about it now. Be sure to ask about:
- "Grandfathering" of existing health plans,
- Federal tax credits that you may be eligible for, and
- Changes to preventive and dependent care coverage requirements.
The next step in choosing health insurance for your company is to find a good broker. There are a number of traits common among quality sellers – and a few ways to check up on those you’re unsure of.
Finding a Health Insurance Broker
A broker is a salesperson who has a state license to sell and service contracts from multiple health plans and insurers. Some states require that you purchase insurance through a broker; others allow you to go directly to insurers. But the benefits of using an insurance broker make it worthwhile in almost any situation.
The majority of group health insurance is "written," or sold, by self-employed insurance agents or insurance brokers who work for agencies. Often, these professionals will handle multiple benefits for your company, like health, dental, and vision plans, life insurance, and more. They develop relationships with the providers that let them act more efficiently on your behalf. They can also help your employees process claims or resolve problems. Many have "patient advocates" who your employees can contact for assistance.
Your health care costs will be based on your employee demographics, so the quotes you get from different brokers should be fairly similar. Because of this, you should choose a broker based on the level of service they can provide. Some attributes to look for include:
- Flexibility - remember that the broker works for you. They should be able to help you get the best deal and the best plan for your employees.
- Responsiveness - even during the evaluation process, pay attention to how long it takes the broker to get back in touch with you.
- A multifaceted approach - by managing several benefits and handling employees' questions, the broker becomes more valuable to you.
The broker you choose should be very experienced in dealing with firms of similar size and in the same industry as your own. Interview several candidates and ask questions like:
- What services do you offer that I will not be able to get from another broker?
- What types of problems can you solve for my employees?
- Tell me about some problems you have helped other clients' employees resolve.
- Can my employees call you for help 24/7? Do you have a web site or online chat for employees to get help?
Finally, location may or may not be an important issue to you. It may be convenient to have a local broker, but since your employees' interactions with them will be online or on the phone, it is not essential.
Watch out!
While almost all brokers are honest, beware of any broker who appears to be cutting corners. Your broker should be able to answer your benefit and policy question on the spot. Also they should have you fill out your own application or at least give you the opportunity to review your application before submitting it to the carrier.
As with any business purchase, if you come across a price that is too good to be true, you should be suspicious. Every state has a department that keeps track of all insurance agents and policies. If you have doubts about the legitimacy of a broker or insurer, you can call and check up on them. Good interviewing and use of referrals should also help you avoid these types of scams.
As you move forward in your purchase decision, keep the benefits themselves at the forefront of your consideration.
Evaluating Group Health Plans
Cost is always a primary consideration, but when evaluating individual plans be sure to think about how they will affect your employees. Once you have several group health plans to compare, there are four main areas you should look into.
Policies and reimbursement
Make sure the policy you choose offers at least $1 million of coverage, since costs for treating catastrophic illnesses can easily reach astronomical amounts.
Check with a local physician's office to make sure that the maximum per procedure reimbursement level is in line with the normal billing range for your area. Should a claim payment fall short of the actual bill, the patient can be left paying the difference.
Also, make sure the deductibles and co-insurance rates are competitive with similar plans. In general, members of a PPO or POS shouldn't have to pay co-insurance of more than 25% of the cost of treatment or in excess of $10,000.
Coverage and features
Virtually all group health plans cover hospital and emergency care. Most also cover outpatient care, which includes routine exams, lab work, and office visits. But plans can vary significantly in other areas. You may find that some do not include treatments such as prenatal or postpartum maternity care, prescription drugs, or ambulance service. Even if they do cover these things, they may have very different co-payment or co-insurance fees.
Pay particular attention to provisions for long-term treatments such as mental health or substance abuse: some group health plans offer insufficient coverage in these areas. Also check provisions for long-term illnesses and restrictions for pre-existing health conditions such as diabetes or asthma.
Doctors
The quality of physicians participating in a group health plan can be the most difficult area to assess, although it is arguably the most important.
Inquire about the screening process that is used to sign up physicians. A screening process should ideally include checks of the doctor's background, including analysis of any previous malpractice issues.
Also ask how many physicians in the network have been certified by the American Board of Medical Specialties. To be certified, a physician must demonstrate competency in a specialty by passing tests or meeting training requirements. Ideally, 85% or more of the physicians should be board certified.
Though it is not unusual for HMO and PPO networks to be enormous, some group health plans sign up doctors simply to boost their numbers. To get a better sense of the actual availability of doctors in the network, ask what%age of doctors actually accept new patients.
A final statistic to evaluate is the physician turnover rate. This can give you a good indication of the likelihood you will be forced to switch doctors. The turnover rate can also indicate how satisfied physicians are with the rules for treatment and reimbursement within the network. Better programs usually have a turnover rate of 3% to 5%.
Grievances
Save your employees many potential problems by researching how the insurers resolve grievances from plan members. Quality organizations should have a set procedure in place for airing disagreements before a grievance board. A clearly outlined appeals process gives members a way to protest unfair reimbursement levels or other problems.
Consulting the state department of insurance, which keeps records of patient complaints, may shed some light regarding patient satisfaction. If there are a lot of outstanding grievances from current plan members, a warning flag should go up.
Before you start contacting brokers, make sure you have a clear understanding of the actual cost of a decent health insurance plan for your employees.
Employee Health Insurance Pricing
Insurance costs keep rising, particularly for employers. According to the Kaiser Family Foundation/HRET Employer Health Benefits 2011 Annual Survey, the average employee health insurance premium increased 8% for individuals and 9% for families from 2010.
That’s more than double the rate of inflation. The average cost of employer sponsored health insurance for a family plan is now more than $15,000, compared to around just $7,000 in 2001.
Fortunately for employees, employers pick up most of that cost. In 2011, on average, employers picked up 82% of premium costs for single coverage and 72% of the premium for families. These percentages have remained fairly stable for a number of years.
Larger companies tend to pay more of the costs for family coverage: large firms paid on average 75% of family coverage premium costs, compared to smaller companies’ 64%. See what other BuyerZone users paid for health insurance.
Conventional employee health insurance tends to have the highest premiums for individuals, followed by POSs, PPOs, then HMOs. For families, PPOs have the most expensive premiums, with HMOs and POSs averaging about the same. HDHP/SOs have the lowest overall premiums.
HMO
HMOs are a low cost option for health insurance, with total premiums for individuals averaging $5,350 and employer contributions averaging $4,408 of that amount.
Besides monthly premiums, out-of-pocket costs for employees include low co-payments for visits to physicians within the network and for prescription drugs. These co-payments average around $21 to $30. Visits to physicians outside the network are generally not covered at all.
As with most plans, employees pay up to a deductible each calendar year, which averages out to $350 for large firms and $2,000 for small firms. HMOs typically don't have co-insurance.
PPO
PPOs cost employers an average of $4,582 per covered employee, with total premiums averaging $5,584.
In terms of patient out-of-pocket costs, PPOs can vary tremendously. Some networks require members to pay only a small co-payment with each visit, much like an HMO. Most have deductibles and co-insurance that members are required to pay. Visits outside of the network will incur significantly higher charges than in-network services.
POS
Average costs for POS plans are slightly higher than HMOs or PPOs: total premiums for individuals average $5,841 with employers contributing $5,057.
POS plans keep out-of-pocket expenses low with easy co-payments for visits within their networks and for referrals. Employees who choose to go outside the network, however, will pay much more in co-insurance.
HDHP/SO
The average cost for a HDHP/SO plan is $4,793 for individuals with the employer picking up $4,070 of the cost. Employers also contribute up to $861--paid directly to the employee--to cover routine medical care.
It's important to remember that with these plans members will be responsible for meeting a deductible of $1,000 or more before coverage kicks in.
Broker fees
Health insurance agents and brokers are paid by the insurer, based on the value of the policies you purchase. If you contract your broker to provide other HR services, such as life insurance or handling COBRA administration, you may have to pay additional fees.
Health Care Buying Tips
Finding insurance for small businesses
Small businesses that have difficulty finding coverage directly from insurers may want to contact their state department of insurance to learn about small business group health providers in their area. As an alternative, small businesses can join an association that offers group benefits for their members. Companies should be careful to scrutinize the operations of such organizations to ensure that all funds are handled appropriately.
Another option to consider is a self-insurance plan where the employer assumes responsibility for basic health care costs directly and usually buys stop-loss coverage for catastrophic events.
Types of policies to avoid
Watch out for hospital indemnity policies and dread disease policies. Hospital indemnity policies pay for each day you are in the hospital.
Unfortunately, most do not provide enough coverage to pay for the typical daily cost of a hospital stay. Dread disease policies cover particular illnesses but tend to be far more expensive than the likelihood of contracting one of these diseases would suggest.
Let employees choose
In 2011, only 16% of firms offered more than one type of health plan. Only 15% of companies with fewer than 200 employees offered more than one option.
However, 42% of companies with 200 or more employees had multiple plans. Offering more than one plan gives your employees the freedom to choose the plan best suited for them. There is little additional cost to you, so it can really improve employee satisfaction and make your small business seem a little bigger.
Know the law
If you decide to create your own health care plan, make sure you do enough research to understand the requirements you have to meet. There are many laws and regulations that govern health care, and many states have their own regulations, too.