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Business Health Insurance FAQ's for the Small Business Owner
as background information for "ASK THE PROS"
Jacksonville Business Journal October 17-23, 2008
Q. How should small-business owners evaluate their options for health coverage for their employees...and where can they get coverage...and what is the best type of coverage?
A. Small-Business owners must consider their needs, wants, and ability to pay, just as an individual does. Consider what impact providing, or not providing, health insurance may have on the company's bottom line. If a down-the-street-competitor offers health insurance coverage, will they lose skilled workers to their competition? Small-Business owners must look at company cash flow, and set an affordable budget to be dedicated to employee health insurance benefits; then, seek out the best health insurance package that the allocated dollars will provide.
Typically, insurers offer four (4) basic health insurance plans:
1. Health Maintenance Organization Plans...HMO's
2. Preferred Provider Organization Plans......PPO's
3. Point of Service Plans.............................POS's
4. Comprehensive Major Medical Plans........Comp. Plans
Of the four, comprehensive plans make up only a small proportion, due to their high premium requirements. Relatively lowest premium cost plans are HMO's, due to the insurer's ability to negotiate fees for service within its contracted provider network. If an insured person seeks healthcare services outside that network, he/she will pay 100% of the out-of-network cost. PPO's and POS's provide healthcare services through insurer contracted networks, but also offer a second set of less attractive benefits when healthcare services are obtained outside the PPO/POS network. [Effectively, a POS plan is a HMO with limited out-of-network benefits.] Over time the differences between PPO's and POS have blurred, with PPO's demanding higher premiums than similar POS plans. Explaining why would take several boring pages, but it has to do with imbedded premium costs for contracted professional fee agreements.
Employers might consider offering Health Savings Account Plans (HSA's), or Health Reimbursement Account Plans (HRA's). Either of those may typically be incorporated into a small group health insurance plan. Both offer potential premium savings to the employer but generate some extra administrative expenses. HSA's are less popular with employees (but very popular with owners and managers) as considerable out of pocket expenses must be paid by the insured person before the insurance comes into play; this in exchange for lower premium outlays coupled with an income tax free voluntary account, funded, owned and controlled by the insured person, which serves to pay the medical bills prior to the point at which the insurance begins to take over.
With an HRA plan, the employer agrees to pay employee's up-front medical expenses directly up to a specified dollar limit, at which point the insurance takes over. That approach results in lower premiums, but exposes the employer to potentially substantial claims risk, so the employer will be required to tie up some cash in a reserve fund, and hire someone to administer it. HRA's work best for larger groups of employees, say 25 in number or more....That's my opinion anyway.
In recent years the number of insurers offering group health insurance plans in the Jacksonville area has dwindled. The players today off the top of my head are: the Aetna, AvMed, BlueCross BlueShield of Florida, United Healthcare, Humana.
It is important that our small business owners partner with a qualified insurance professional who will evaluate and offer group health insurance options from several insurance companies based on the business owner's unique wants, needs, and budget. Once the decision has been taken, the insurance professional will assist the business owner with setting up the insurance plan. Small business owners in Florida are fortunate to have access to vetted insurance professionals via the Small Business Resource Network, an affiliate of the Small Business Development Center at UNF. Go to:www.sbrn.org, and click on Insurance.
Q. Can businesses just pay employees more and not offer health insurance?
A. Yes....and many small businesses do so, some in exchange for the employee's agreement to use those dollars to buy individual health insurance policies. In that circumstance the employee pays for the insurance with after-income-tax dollars.
Q. What about independent contractors, how can they find coverage that is affordable?
A. Independent contractors, situated in Florida, can apply for guaranteed issue "one person" group health insurance during an annual open enrollment period in the month of August, with such insurance becoming effective on October 1st of that year. For such contractors having significant health issues, these guaranteed issue plans offer a haven; however, the premiums for those plans are expensive. For independent contractors in reasonably good health, individually underwritten Health Savings Account plans provide a very attractive alternative. Premiums for these plans, plus contributions to their HSA cash account element, are 100% income tax deductible for the contractor. Again, the contractor should seek out an insurance professional for assistance...see, WWW.sbrn.org.
Kenneth L. Smith, CLU, FLMI
166 A1A, North, Suite 204
Ponte Vedra Beach, FL 32082
www.kensmithinsurance.com
