In the Depression era, country folk would often reimburse their family doctors for a simple treatment with a cord of firewood or a bushel of vegetables grown from the garden. That’s wishful thinking nowadays, and small businesses are struggling to provide health insurance benefits to cover the cost of even a routine check-up for their employees.
Over the course of the past century, health care has evolved into a huge and often intimidating multi-trillion dollar industry. Researchers predict that U.S. health care costs will reach $3 trillion by 2011 as average costs increase at nearly twice the rate of inflation.
According to the 2007 Kaiser Family Foundation Employee Benefits Annual Survey, small businesses are having the most trouble coping with higher health care costs. Forty five percent of small businesses (ranging from 3 to 199 employees) are very or somewhat likely to increase the amount that employees pay for health care. Another 41% are likely to increase the amount employees must pay for access to prescription drugs, and 42% of employers anticipate raising the cost of their employees’ co-payments for typical medical services. Only 3% of small businesses that provide health care are inclined to drop health care coverage entirely, though.
While employee cost sharing is becoming more of a necessity, businesses still pay for the bulk of their employee’s health insurance coverage. The same Kaiser study estimates that in 2007 employees paid an average of $694 for individual health insurance coverage and $3,281 for family coverage. Employers, on the other hand, footed an average of $3,785 for individual coverage and an astounding $8,824 for one employee’s family during only a single year.
Small businesses often walk a thin line by not providing any group health insurance at all. Sam Gibbs, senior vice president of sales for eHealthInsurance.com estimates that out of the 47 million uninsured people living in the U.S., 28 million are the working uninsured.
“These are folks that work at companies, mostly small businesses, that are just kind of left out because business owners can’t figure out how to get affordable health insurance,” he explained.
Illnesses or injuries sustained to the working uninsured can negatively impact business by necessitating time off and slowing production. For some small businesses, though, it’s an unavoidable risk when compared to exorbitant health insurance costs.
It still might not be the best decision to make, however. There are plenty of health insurance plans and cost sharing options that can be specifically tailored to meet the needs of employees while making coverage more affordable for employers
New Plans Put Onus on Employees
The abundance of health insurance options on the market can make shopping for health insurance seem daunting. According to Matthew Manock, eastern Virginia director of sales for Anthem Blue Cross and Blue Shield, the most prominent plans over the past two decades are Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs).
HMOs, more popular in the 1990s, allow a patient to choose a primary care provider. From there, the patient is directed to another physician within the same network of health care providers for specialized treatment. Although some HMO plans have been heavily criticized for the lack of options extended to patients, HMOs offer arguably the most comprehensive coverage.
PPOs allow patients the ability to see physicians outside of their network but usually at a higher cost to the patient. This is especially beneficial if an employee needs specialized treatment.
“If an employer wants a really low deductible comprehensive plan, they could pick a $250 deductible PPO plan with 90% coverage in network and 70% coverage if (employees) go out of network,” explained Scott Leavitt, president of the National Association of Health Underwriters and owner of Scott Leavitt Insurance. “That’s a pretty common plan.”
Scott added that PPO plans usually require low co-payments from patients. Furthermore, prescription drugs can cost as low as $5 for a generic brand although more popular brand name drugs typically cost more.
According to the Kaiser Family Foundation, HMOs are the inexpensive choice. The average premium for a small business with a PPO plan was $4,881 in 2007 compared to $4,299 for a single adult covered by an HMO plan.
Over the past five years, more companies are turning to flexible spending accounts or health savings accounts to reduce premiums. Flexible spending accounts, dubbed “cafeteria plans” in the health industry, allow businesses and employees to set aside pre-tax money to be used for health care expenses.
“What we’re seeing out there a lot for these smaller businesses is they’ll cover 50 percent of the costs for the employee because that’s all they can afford,” Scott acknowledged. “(Employers) then say, ‘If you want to cover your spouse, that’s on your own dime. That’ll be deducted from your paycheck.’” He added that small businesses are very rarely offering to cover 100% of an employee’s health insurance costs, but flexible spending accounts help reduce the burden of high premiums.
Health savings accounts (HSAs) are becoming popular alternatives to flexible spending accounts. Created as a part of the 2003 Medicare Modernization Act, HSA plans save employers even more money because they are coupled with a federally qualified high deductible health plan.
HSAs allow both employers and employees to add money to the account. Coupled with the savings account component, HSAs make health expenses highly visible to consumers, often leading employees to forego superfluous medical care.
“It lets (employees) be more involved instead of the traditional approach where they’re sick, they go to the doctor, they pay a co-payment, they get a prescription, somebody else pays the bills, and they have no idea whether they needed the care or what it cost,” said Scott.
HSAs are on the rise, according to statistics released from America’s Health Insurance Plans’ Center for Policy and Research. In March of 2005, slightly over 1 million people were covered with HSAs; by January of this year, the number was well over 6 million. HSA enrollment in the small group insurance market has grown proportionately over the same timeframe, from 147,000 insured people in 2005 to over 1.8 million now.
“In a flexible spending account, if they don’t spend it, they lose it,” Scott said, adding that high deductible HSA plans give consumers more freedom to assess the costs of health care.
“With the HSA high deductible health plan, you can actually put up to your deductible in there or you could put nothing in there. The money that you don’t spend rolls over every year, and it’ll continue to keep growing for you, so that’s one of the big perks. It makes (employees) more cognizant because they see that money.”
Another innovation in the health care industry is the concept of wellness plans. Wellness plans encourage employees to make better lifestyle choices that can ultimately reduce physician visits.
Companies like Richmond, Virginia-based Health Management Corporation (HMC) work with health insurance providers to create a healthier work environment for employees.
“We partner with local entities, like the American Heart Association, in helping employers inspire folks to just walk or get 30 minutes of physical activity,” said Matthew. HMC will go so far as to look at an employer’s vending machines and “swap out Fritos for apples,” he said.
Another benefit that HMC provides to employers is a 24-hour nursing hotline. “Sometimes late at night someone might be showing signs of an ailment, and you might not be sure about what to do,” noted Matthew. A call to the hotline puts covered employees in touch with a nurse who can help the employee decide whether or not they need emergency care.
Health insurance plans are becoming more transparent, which will hopefully bring costs down for employers. Most of all, though, employees are taking an active role in their health decisions. “Hopefully, they’re going to become smart consumers,” Scott said.
Companies like Anthem Blue Cross and Blue Shield are reaching out to part-time employees, too. Part-time workers can purchase limited health insurance plans, which can provide small businesses another avenue of cost savings.
“It’s nice to be able to offer some protection for (part timer employees),” Matthew said. Employers benefit because it helps recruit and retain part-time workers.
Choosing the Right Option
Selecting appropriate coverage for a small business boils down to three important factors: staying within a budget, understanding employee health coverage needs and finding a licensed agent.
“You need to be an informed consumer,” Sam remarked. “The Internet is a really valuable source. You just type in health insurance, Google it, and you’ll get a dozen or so different sources to go search. Once you find some of the health insurance carriers, go to their Web sites.” Furthermore, health insurance providers usually have a toll-free 800 telephone number that allows a business owner to talk with a representative to discuss coverage options.
“It’s really all about arming yourself with information so you can make a quality decision about the type of health insurance policy that works best for you and your employees,” Sam said.
Employee involvement is pivotal because spending money on services an employee won’t use is a waste of money.
“During the decision process, a lot of times you can actually survey your employees and ask what kind of benefits would attract them,” Scott said. A survey could be as simple was walking up and down the job site and asking employees or meeting with some or all employees.
Employee input is also important because some health insurance providers allow companies to offer dual health care options. For instance, either a $500 deductible comprehensive plan or an HSA plan might be available for employees enrolled in a small group health plan.
The final step before choosing a health care provider is picking a licensed broker or agent. The NAHU website, for instance, provides a database with over 20,000 licensed brokers. Furthermore, selecting an independent agent is usually best because they are not employees of a particular provider; they have the flexibility of working with several different insurance companies to find the best option for an employer.
Another good method for locating a licensed agent is to seek information with various trade organizations or a local chamber of commerce. Resources are also available from the National Federation of Independent Businesses (NFIB).
In choosing an agent or broker, it’s important to get references and ensure the person’s credibility. “You can go to the department of insurance in your state to see if there’s been any (legal) action against them,” Scott advised. “That’s public information, so if anyone’s actually been charged or convicted of fraud issues, the department of insurance would have a record of that.”
Be alert for signs of fraud from fly-by-night insurance companies. Web sites like www.avoidfraud.org highlight warning signs of fraud, such as prices that are too good to be true or companies that require membership dues to a parent organization.
Once a licensed broker has been chosen, he will often visit an employer’s office to discuss various health insurance plans. This is also a good time to involve employees. After a health insurance plan has been selected, the broker or agent will usually have an enrollment meeting to address any questions or concerns that employees may have.
“You never want an employer to purchase health insurance as a benefit but have the employees feel that it’s not a benefit,” Scott added.
Even though health care is not what it used to be, the resources are available to help small businesses afford basic coverage. A little homework can save a lot of money while keeping employees healthier and on the job longer.
Remember Three Things
When looking into health care coverage for you business, keep in mind three things:
1) Know how much you’re willing to spend, and find out what fits your budget. Visit www.ehealthinsurance.com or www.healthcoverageguide.org to research coverage options.
2) Talk to your employees. There’s no reason to purchase health care coverage that your employees won’t use. You’ll get stuck with premiums and sick employees.
3) Find a licensed independent health insurance broker or agent to help you through the process. Visiting websites like www.nahu.org and www.ahip.org or talking to your local chamber of commerce will help point you in the right direction.
