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Small Business Health Insurance Plans:
What You Should Know

If you are one of the millions of people who are self employed and/or an owner of a small business, you are faced with making a difficult decision when it comes to group health insurance. With all of the different types of health plans to choose from, you may just feel like flipping a coin and hoping for the best. It is important, however, that you make an informed decision as to which plan will be best for both you and your employees.

Group Health InsuranceFortunately today, there are a number of tax laws that can work to your benefit when it comes to group insurance. One of the first decisions you should make, however, is how you want to structure the benefits of your plan. Typical "major medical" based group plans will include the treatment of illness, disease, accidents, and medical, emergency, and surgical care. Options include prescription coverage (which sometimes can be capped at specified amounts), vision, dental, pregnancy, and specialty care.

Today, employers are offered a wide range of insurance products and plan options for their employees. Many of these products permit you to make adjustments so that the cost is not so overwhelming. With deductibles and co-insurance, it is easier to tailor a program that can fit both your needs and those of your employees without breaking the bank. It's interesting to note that according to the National Survey of Employer-Sponsored Health Plans 2004, which is conducted annually by Mercer Human Resource Consulting, the average total cost of health benefits for all medical and dental plans offered, averages around $6,679 per employee. This amount includes the premium contributions of both the employer and employee.

The Basics

Three popular types of group health are:

  • Indemnity or Traditional Insurance Plans
  • Health Maintenance Organization Plans (HMO's)
  • Preferred Provider Organizations (PPO's)

About Traditional Insurance:

Traditional coverage, also referred to as "indemnity" or "fee-for-service," allow you to select the doctor, hospital or medical facility of your choice. With a traditional plan, whenever you seek treatment, you usually have to pay the bill up-front and then submit a claim to the insurer for reimbursement. Generally, these plans require that a deductible be met before coverage can begin. Moreover, once the deductible is met, insurers predominantly will only pay about eight percent (80%). While this type of program may be attractive, it can be quite expensive and the scope of coverage for well care is often limited.

About Health Maintenance Organizations

Unlike Traditional policies, the medical care of Health Maintenance Organization's (HMOs) is provided by the HMO's network of providers. What is referred to as the "primary care physician" (PCP) is chosen from among a number of contracted physicians, and he or she oversees all medical care. With a typical HMO, most medical care must start with the PCP who then authorizes referrals to specialists as deemed necessary. Note that it is not a requirement that emergency medical care have PCP authorization. There is a concern that with this type of insurance, coverage will not be extended outside of the network. However, if medical necessity mandates it, the HMOs will generally cover it. HMOs also encourage preventive care and often cover it either with a low co-payment or at no cost.

About Preferred Provider Organizations

As with the HMO, the Preferred Provider Organizations (PPO) products offer co-payment options and deductibles. These types of policies help employers balance the costs between themselves and their employees. The difference between the PPO and the HMO is that a primary care physician does not need to be chosen. However, medical care is provided by a PPO network of physicians. You, or a family member, are able to receive coverage outside the network, but as a rule, higher co-insurance or deductibles will need to be met before coverage begins.

With managed care insurance (HMO or PPO), there is no guarantee that the physician or hospital you want will be a part of the network. Additionally, physicians and hospitals can participate or withdraw from the network at any time.

Choosing An Insurance Carrier

The three things to keep in mind when shopping around for an insurance carrier are: low cost, stability, and service. Costs for coverages can vary from one company to the next for the same type of plan. Thus, get quotes from three to four different companies. Insurence carriers are evaluated and rated by several different rating services. The most common are: A.M. Best, Standard & Poor's Insurance Rating Services, Weiss Research, and Moody's Investor Services. You should check with these rating services and inquire about the carriers' evaluations and ratings. Lastly, it is important that you choose an insurance carrier that provides you with fast and efficient service. You want a carrier that will answer your questions quickly and will respond to claims in a fair and timely manner. Generally, quality insurance carriers pay out at a rate of 75-80%, so be sure that the one you choose does.

Considering Your Options:

While the task of choosing affordable group insurance can seem daunting, armed with the basic knowledge of the different types of plans, you should be able to begin your search for an insurance carrier with more confidence. Be sure that you compare rates and coverages from at least three to four different carriers. In addition, you will want to inquire as to their ratings with the above-mentioned rating services. Remember, "cheap" should only apply to the premiums, not the benefits. And yes, quotations can also be requested by Texas, Florida, New York, Illinois and California residents.

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