Many small business owners struggle not only with the cost of health insurance, but also with untangling the web of health insurance information. A recent survey by the National Association of Insurance Commissioners found that two-thirds of business owners know very little about health insurance choices and even less about how to pick the plan that will best suit their company's budget and employee needs.
Before you decide that you can't afford health insurance -- or throw up your hands in frustration over the alphabet-soup acronyms of health insurance choices -- make sure you understand the basics of what is available for small businesses.
- Health Maintenance Organization (HMO). Your insured employees must choose a primary care physician (PCP) from a list provided by the HMO. Any care outside the network may not be covered by the insurance (or is covered at a higher deductible or co-pay).
- Preferred Provider Organization (PPO). This works similar to an HMO except that the insurance company has contracts with hospitals and doctors to provide service to its insured customers at a discount. Insured employees can go outside this network of preferred providers, but, again, it will be at a higher deductible or co-pay.
- Point of Service (POS). This is a mix of the HMO and PPO models (above). POS plans require that insured employees select a primary care provider (like an HMO), but employees can go out of network and pay the higher cost in a deductible or co-payment. But the POS plan will pay the cost if the primary care provider refers the insured employee to an out-of-network doctor or hospital.
- Indemnity Plans. These plans offer the most flexibility for insured employees -- and are usually the most costly for business owners. Insured employees can choose any doctor or hospital where they want to receive care. These plans have a deductible, which, once reached, the insurance company will pay benefits, usually 80 percent of the expenses.
- Health Savings Accounts (HSA) and High Deductible Health Plan (HDHP). HSA is not health insurance, but a savings plan for employees to put money away for healthcare expenses. The money is saved tax-free. In order to open an HSA, the employee must have a HDHP -- also known as catastrophic health insurance -- probably the least expensive of health insurance plans. HDHPs do not pay healthcare expenses until the cost reaches into the thousands of dollars. According to the NAIC, as of 2007, in order to qualify for HSA, the HDHP minimum deductible has to be set at $1,100 (for individual), or $2,200 (for family). The annual out of pocket expenses (including deductibles and co-pays) could not exceed $5,500 (individual coverage), or $11,000 (for family).
So what is best for your business?
- If you are looking at cost, remember that HMOs are usually less expensive to fund than PPOs and POS.
- Indemnity plans are the most expensive. Even cheaper are the High Deductible Health Plan, which you could offer with an HSA.
- A tip off to the cost to your business? The higher the deductible the lower the premium.