Company health insurance introduction
Employees consistently rank company health insurance as the most important of all their benefits. Not surprisingly, U.S. businesses spend hundreds of billions of dollars on company health insurance programs every year.
But as premiums continue to rise, it’s becoming increasingly difficult for businesses to manage the costs. Small businesses in particular are faced with the tough choice of stretching their budgets to absorb the expense or passing some of the burden to employees.
The three most popular types of company health care plans offered to employees today are HMOs, PPOs, and point of service plans (POSs). The landscape has changed considerably in the last few years – conventional indemnity plans have almost vanished, and consumer-driven plans have widely taken hold. Some businesses offer only one option, while others – particularly those with a large, diverse group of employees – offer two or more.
It can be tough to figure out which plan is best for your company. Because there are so many variables at work, some companies reevaluate their health care options every year. Premiums change annually, your employee base could change, and state and federal rules affect costs and coverage in unpredictable ways. But because 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 company health insurance coverage. Then when you’re ready, we can put you in touch with health insurance vendors or brokers in your area – free.
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Types of health insurance plans
In the last twenty 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 table shows the percentage of covered workers in the United States for each of the main types of plans. (It is worth noting that this breakdown varies considerably in different parts of the country.)
| |
Conventional |
HMO |
PPO |
POS |
| 1988 |
73% |
16% |
11% |
(na) |
| 1998 |
14% |
27% |
35% |
24% |
| 2007 |
3% |
21% |
57% |
13% |
| Source: Kaiser Family Foundation/Health Research and Educational Trust, Employer Health Benefits, 2007
Annual Survey |
Here is a rundown of the main types of plans.
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 type of plan.
However, HMOs are also the least flexible type of health care plan. They require members to choose a primary care physician who performs basic health checkups and approves visits to other physicians. These plans 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.
This gatekeeper system represents both the best and the worst of HMOs. While this structure helps minimize costs for employers, it can be unpopular with employees who currently use doctors outside the HMO network, since they must switch physicians to receive coverage. Also, employees who want more control over their medical care can find it annoying to jump through the gatekeeper hoop to see specialists.
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 that 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 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 encourage PPO members to use specific doctors and hospitals that have been designated by the organization as preferred providers. These doctors and hospitals agree to provide health care to PPO members at lower rates, which allows the PPO to reduce overall health care costs.
POS
Also known as open-ended HMOs, point of service (POS) plans combine elements of both HMOs and PPOs. As with an HMO, members choose a primary care physician who will provide referrals when needed. But they are also free to visit out-of-network providers without a referral, and at least some of the expenses will be covered. However, members who use services outside the network must pay more than they would for in-network services. This increased cost typically involves deductibles and coinsurance, much like conventional fee-for-service plans.
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 that is rapidly gaining popularity is the consumer-driven health plan.
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Consumer-driven health care
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, but is slowly trickling down to smaller companies.
The term “CDHC” can include a wide variety of plans. The most common consumer-driven plan pairs a health savings account (HSA) with a high deductible ($5,000 or more) insurance plan. Employers and employees make pre-tax contributions to the HSA that can be used to pay for routine and preventative medical care. The insurance provides coverage for catastrophic or high-cost events. Typically, any unused amounts in the savings account can be rolled over and used in subsequent plan years.
Another so-called CDHC plan design offers a broad menu of health care choices with varying contribution levels that an employee can choose from at enrollment. This is more accurately referred to as a defined contribution plan, but it is often described as consumer-driven, since the employer gives each employee a fixed dollar amount to apply to the available health care options.
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.
The level of interest shown by many large companies suggests that these plans will quickly become more popular. In fact, some experts predict that CDHC will almost completely replace managed health care plans in just a few years, much like managed health care did to conventional insurance.
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Finding a health insurance broker
The first step in choosing health insurance for your company is finding a good broker. A broker is a salesperson who has a state license to sell and service contracts of multiple health plans or 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 agents or brokers who work for agencies. Often, these agencies will handle multiple benefits for your company: 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 will 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 makes themselves 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:
- 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, there are some that may not present policies fairly. They may offer a computerized search that purports to compare all policies on the market, but favors their own pet policies.
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.
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Evaluating group health plans
Once you have several group health plans to evaluate, there are four main areas you should look into.
Policies and reimbursement
Some group health plans set artificially low limits on the maximum payment. Make sure the policy you choose offers at least $1 million of coverage, since costs for treating catastrophic illnesses can easily reach astronomical amounts.
Also, watch out for low reimbursement levels. Some policies pay a set maximum per procedure, which can be far less than what physicians in your area actually charge. If the claim payment falls short of the bill, the patient can be left paying the difference. To avoid this, you may want to check with a physician to see if reimbursement levels are within the normal billing range.
If you are evaluating PPOs or POSs, avoid overpaying for the flexibility they offer through high deductibles and co-insurance. Be wary of policies that require patients to co-insure more than 25 percent of the cost of treatment or ones that continue to charge co-insurance for costs 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 and postpartum maternity care, prescription drugs, and ambulance service – or have very different co-payment or co-insurance fees in these areas.
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
TThe 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 percent 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 percentage 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 percent to 5 percent.
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.
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Employee health insurance pricing
Insurance costs keep rising, particularly for employers. According to the Kaiser Family Foundation/HRET Employer Health Benefits 2007Annual Survey, the average employee health insurance premium increased 6.1% from 2006. That’s more than double the rate of inflation. The average cost of a family PPO plan is now more than $12,000, compared to around $10,000 just three years earlier in 2004.
Fortunately for employees, employers pick up most of that cost. In 2007, on average, employers picked up 84% 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: large firms paid on average 77% of family coverage premium costs, compared to smaller companies’ 64%. See what other BuyerZone users paid for Health Insurance.
Generally, conventional employee health insurance tends to be the most expensive program for individuals, followed by PPOs, POSs, then HMOs. For families, PPOs are the most expensive, with POSs the cheapest.
HMO
HMOs are the lowest cost option for health insurance, with total premiums for individuals averaging $4,299 and employer contributions averaging $3,588 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 generally range from $5 to $25. And 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 (typically between $250 and $1,000) as benefits are provided, then around 10 to 20 percent co-insurance of any additional charges.
PPO
PPOs cost employers an average of $4,638 per covered employee, with total premiums averaging $3,920. While almost as expensive as conventional health plans, they are much more popular with employees and employers because of their greater flexibility.
In terms of patient out-of-pocket costs, PPOs can vary tremendously. Some networks require members to pay only a small deductible with each visit, much like an HMO. Most have deductibles and co-payments similar to HMOs, and most will require members to pay significant co-insurance on out-of-network visits.
POS
Average costs for POS plans are slightly higher than HMOs: total premiums average $4,337 with employer contributions averaging $3,709.
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.
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.
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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.
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 2007, only 13% of firms offered more than one type of health plan. Only 11% of companies with fewer than 200 employees offered more than one option. However, 44% 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.
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