Group Health Insurance

Costs Proving Prohibitive to Small Business Coverage
Written by Nancy Sinatra   
More than half of employers that run small businesses offer group health insurance coverage for employees, but this number has been dropping since the late 1990s as costs have made providing coverage out of the reach of many small companies.

Group health insurance is essentially insurance that is sold to a group of insureds rather than to indiviudal insureds. By selling insurance to groups, insurers are able to spread the risk out among the group, and thus rates tend to be lower than to individual insureds.
 
Most group health insurance is offered through an employer to employees. Health insurance coverage has become a standard part of the vast majority of American worker's compensation, and a key tool companies use to recruit and retain employees.
 
While nearly all major American companies offer their employees group health insurance, only about 59 percent of smaller companies do. For our purposes, we'll define smaller companies as companies that employ fewer than 199 employees. The number of small companies offering health insurance benefits has been slowly, but steadily decreasing since 1999, a disturbing statistic for the American worker as health costs continue to rise, and as much of the sparse job creation going on in the current weak economy is being done by small employers. According to the Office of Advocacy of the U.S. Small Business Administration, nearly half of all private sector jobs are in small companies.

As mentioned before, the number of small businesses that offer employee health insurance has been dropping since the late 90s. In another trend that should be disturbing to workers, newer small businesses are much less likely to offer coverage to employees than older, established firms. According to a 2005, study, for businesses with 10 employees or less, about 43 percent of the companies that had been running for more than 20 years offered coverage, while only about a quarter of those that had been in business for less than five years offered coverage. If this trend holds up, and the newer companies continue to not offer health insurance coverage, the ranks of uninsured workers is likely to increase.

Not surprisingly, the main reason cited by health insurance companies for not offering health insurance is cost. According to recent research by the RAND Corporation, health care coverage costs place a higher burden on small companies in terms of payroll than on big companies. This hurts small companies in attracting good employees, because in today's marketplace many employees see a solid health plan as a greater benefit than a higher salary. To control costs and to recruit employees, small businesses should try to find a group health plan that best meets their needs.

Finding an affordable insurer

When choosing a group health plan, small businesses should consider several factors. One of those factors is types of health coverage. Most group health insurance plans cover a variety of health care needs, and the benefits have several methods of delivery, including:
  • Indemnity plans: These plans tend to be more flexible than other plans, and usually come with a deductible that employees or employers must pay before the insurer begins paying for health care costs. In most cases, the insurer covers 80 percent of costs, while the employee or employer picks up the remainder.
  • PPO plans: These plans keep costs down by requiring insureds to choose health care services from a network of providers that the HMO has cut a deal with for discounted prices. The majority of employees covered by small business group health plans have PPO coverage.
  • HMO plans: These plans work similarly to PPO plans. Insureds pick a primary care physician from a insurer-approved list of providers. The PCP manages your care and writes referrals to any other provider you might need.
  • Point of Service plans: These plans are a hybrid between HMOs and PPOs. The insured picks a primary care physician from a list, and if the PCP refers the insured out of network, the insurance picks up the bill, if the insured goes out of network on his or her own, he or she pays a higher cost.
Health savings account, high deductible plans: Recently the federal government allowed employees to create tax-free health savings accounts. The accounts help employees pay deductibles in high deductible health plans. These plans generally have low premiums for employees and employers, but employees must pay high deductibles before receiving care.

Key points

When selecting a group health care plan for your business, there are some key things to remember. For starters, it may be advisable to use an insurance broker to purchase a group health plan. A broker can help you become part of a bigger group of similar businesses seeking coverage, and thus get you a lower rate as you join a larger risk pool.

You should talk to your employees to see what type of coverage they need, and what type is the most effective for your geographic area. There's no point in joining a PPO plan where the nearest in-network provider is on the other side of the state.

Contact your state department of insurance to find out if any tax breaks or grants are available for small businesses that offer employees health insurance. Also, get with your accountant to find out about any federal tax breaks or programs.

While group health insurance is expensive, lower rates can be found by the resourceful. Group health insurance is an investment in your employees, as their overall health and morale is important to your company's bottom line.
 
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