Friday, August 10, 2007

Group Health Insurance

Buying insurance for your small business (group coverage) has different rules than buying just for yourself. The good news is that coverage for small businesses provides advantages not offered to individuals. Below, we outline the basics behind group coverage.

What Is Group Coverage?

Group medical coverage refers to a single policy issued to a group (typically, a business with employees, though there are other kinds of groups that can get coverage) that covers all eligible employees and, sometimes, their dependents.The rules are quite different for group coverage, in large part because the insurer's risk is calculated differently.

With groups such as small businesses, on the other hand, the insurer determines a premium price based on risk factors balanced over the entire group, using general information on members of the group, such as age or gender. Perhaps most importantly, insurers are required by law to offer coverage to small groups.

Who Is Eligible for Coverage?

The general rule is that if an employer offers group health coverage to any full-time employees, the employer must offer coverage to all full-time employees.

As for part-time employees, the employer has the option of whether to offer coverage to them. If the employer offers coverage to any part-time employees, all of them must be offered the coverage.

These rules apply regardless of the medical condition of the employees. In other words, any eligible employee can't be denied coverage based on previous medical problems, otherwise known as pre-existing conditions.

In addition, any dependents of eligible employees are also generally eligible for coverage under a group plan. Dependents cannot enroll for coverage unless the employee has enrolled.

What Do Employers Have to Pay?

Most insurers and health plans require employers to cover at least half of the premium cost for covered employees. This requirement is meant to encourage more employees to join the plan, and prevent what's known as "adverse selection" where only those prone to sickness are motivated to sign up, creating a much higher-risk group for the insurer. Some employers choose to pay all of the premium; others require employees to pay a portion. Recently, a new health plan became available that allows small employers to contribute as little as 25 percent for the premium cost. You should speak to a broker or agent to find out about all your options.

On the other hand, employers have no obligation to pay for premiums for dependents. In other words, employers may contribute towards premiums for dependents, but are free to require employees to pay for the full premium cost for covered dependents.

Besides offering access to affordable health services, group health insurance coverage also helps businesses in other ways such as employee retention and tax benefits. The reality is that there are plenty of compelling reasons to consider buying group health insurance for your business.

Below, we outline the main ways that purchasing a group policy can benefit you, your business, and your employees.

Better Access to Care

People who have health coverage are in a better position to obtain medical care, including preventive services that may help to avoid more serious health problems down the road. Having health coverage encourages people to actively maintain their health and improves their access to services that may otherwise be unaffordable.

Manageable Costs and Financial Security

Besides the health benefits that come with improved access to care, health coverage also ensures that the costs for services will be manageable. People with health coverage are protected financially from burdensome debts arising from major illnesses or injuries. The need for medical services often arises unexpectedly, and the costs typically exceed what most people can afford or want to pay.

Here's a breakdown of what various plan types typically feature. As you read about each type, just remember that today's health coverage market often offers "blends" of these traditional types.

Health Maintenance Organizations (HMOs)

In a very general sense, HMOs offer predictable cost-sharing and administrative simplicity for patients, along with fairly restrictive rules on which providers patients may see. Participants are entitled to doctor visits, preventive care, and medical treatment from providers who are in the HMO's network. In addition to the monthly premium (which may be shared by the employer and employee), participants usually need to pay a small fee at the time of service, called a copy (often in the range of $10 to $20), and the HMO covers 100 percent of the services provided. Most HMOs use capitation arrangements to reimburse physicians.

HMOs typically require patients to select a "primary care physician" (PCP) who can refer patients to specialists, also within the HMO's network. HMOs often won't pay for medical care that wasn't referred by the primary care physician (some exceptions include emergency services or preventive gynecological exams). They may also require prior authorization for elective care or referrals.

Preferred Provider Organizations (PPOs)

Preferred provider organizations (PPOs) generally offer a wider choice of providers than HMOs. Premiums may be similar to or slightly higher than HMOs, and out-of-pocket costs are generally higher and more complicated than those for HMOs. PPOs allow participants to venture out of the provider network at their discretion and do not require a referral from a primary care physician. However, straying from the PPO network means that participants may pay a greater share of the costs.

Point-of-Service Plans (POS)

A point-of-service plan (POS) is a type of managed care plan that is a hybrid of HMO and PPO plans. Like an HMO, participants designate an in-network physician to be their primary care provider. But like a PPO, patients may go outside of the provider network for health care services. When patients venture out of the network, they'll have to pay most of the cost, unless the primary care provider has made a referral tothe out-of-network provider. Then the medical plan will pick up the tab.

Health Savings Accounts (HSAs)

Federal legislation enacted in late 2003 authorized the creation of Health Savings Accounts (HSAs). These savings accounts are combined with a high-deductible health plan. Because high-deductible plans generally cost less than low-deductible plans, HSAs are a good option for employers who cannot afford a comprehensive (low-deductible) health plan.

Both employers and employees may contribute to HSAs. Total annual contributions to the savings account may be up to 100% of the annual health plan deductible amount and may be used to pay for any qualified medical expenses. The savings account is controlled by the covered employee and is intended to pay small and routine health care expenses.

Once the deductible amount is reached, additional health expenses are covered in accordance with the provisions of the health insurance policy. For example, an employee might then be responsible for 10 percent of the costs for care received from a PPO network provider.

Evaluating the Plans

Health plans are complex. They're often loaded with so many details that it can be very difficult to focus on the issues that are most important for you as a small business owner. Very generally speaking, the main considerations to worry about boil down to the plan's benefits, cost, and choice. Remember these three main issues when evaluating and comparing plans.


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