Health Insurance

Two questions small-business owners face when considering health insurance are "What kind of benefits should I buy?" and "How much should I pay?" Regarding the first, buy the benefits that will protect you, your employees and your families in case of emergency. Regarding the second, it depends on your age (and your employees' ages), gender, and whether families will be considered.

Choosing the most suitable and cost-effective selection of medical benefits can be time consuming. A workforce that's married with children will have considerably different needs, such as maternity and dental coverage, than groups of single workers. People who work outdoors or workers who spend their days at a computer may prefer an optical program for eye care, safety glasses and sunglasses.Take a look at your workforce to determine:

• How many workers fall into each age group
• How many heads of households there are
• Where your workers live
• How big their families are
• Any other pertinent information that could affect your decision, such as the type of work they do

Your medical insurance costs may be determined solely on the basis of your company's experience, such as the aggregate number and dollar value of claims submitted by your employees. In other cases, you'll be a part of a larger statistical group that the insurance company or health-care provider uses in calculating your premiums.

Be sure to explore the wide range of options available in health-care coverage today, including these:

Fee-for-service coverage provides eligible employees with the services of a doctor or hospital with partial or total reimbursement depending on the insurance company. Most insurance companies offer 80/20 plans; the insurance company pays 80 percent of the bill, and the employee pays 20 percent. The employee can go to any doctor he or she chooses, and the plan covers any service that is defined as medically necessary and specified in the plan.

Health maintenance organizations (HMOs) provide a range of benefits to employees at a fixed price with a minimal contribution (or sometimes no contribution) from the employee, as long as employees use doctors or hospitals specified in the plan. Usually, HMOs are set up so patients go to the managed-care-plan facilities. If a patient goes to a doctor or hospital outside the plan--except in case of an emergency or if the individual was traveling outside the plan's service area--no benefits are paid at all. Make sure the HMO has facilities near where your employees live and get feedback on the HMO's reputation in the community before you sign up.

Preferred provider organizations (PPOs) are considered managed fee-for-service plans because some restrictions are put in place to control the frequency and cost of health care. Under a PPO, arrangements are made among the providers, hospitals, and doctors to offer service at an alternative price--usually a lower price. Many times there's a co-pay amount, which means that employees pay $5 or $10 for each visit to doctors specified in the plan, and the insurance company pays the rest. PPOs differ from an HMO in that if an employee goes to a doctor not specified by the insurance company, the plan still partially covers it. There's usually a higher copay amount or a deductible with varying percentages.

A "flexible-benefit" plan allows employees to choose from different fringe benefits. If your workforce is largely white-collar, for example, they may appreciate a health program that encompasses an executive fitness program. Other health programs include vision care plans and rehabilitation for alcohol and substance abuse.

Aside from being concerned about the cost of your health-insurance plan, you should also look into the creditworthiness of the insurance provider. Make sure it's rated A or better by A.M. Best, an insurance industry rating service whose rankings are available online and at your library. When choosing between two providers, go with the higher rated, established company, even if its cost is a little higher. That way, you can protect yourself from "insurer flight," which when an insurance carrier packs up its bags and leaves rather than meeting new mandates in your state.

If you've narrowed your choices down to two HMOs, ask each to name a private firm you can speak to that's already using their services. Given equal price and medical services, maybe one HMO has a simpler billing method or a superior consumer service division than the other does.

Growing enterprises need to know that government legislation requires businesses to offer continued coverage in health insurance benefits even after an employee has left. The Consolidated Omnibus Budget Reconciliation Act (COBRA) calls for this privilege to be extended to any worker in a firm with 20 or more full-time employees. Signed into law in 1986, COBRA demands compliance in both union and nonunion plans. Only two groups are exempt from complying with COBRA: churches or church-operated, tax-exempt organizations and federal or District of Columbia employers.

You, the employer, need only offer continued coverage--you don't have to pay for their coverage. Any ex-employee who elects to continue coverage must pay the full cost of that coverage. This includes both the employer and employee's share. Employees may elect to remain covered under the firm's plan for up to 19 months, and dependents can maintain coverage for up to 36 months.

COBRA has imposed additional administrative burdens and potentially higher plan costs on virtually all group insurance plans. Managing and monitoring COBRA compliance procedures is necessary to avoid costly financial penalties involved with noncompliance.

One penalty is loss of the corporation's tax deduction for its group insurance plan. The plan administrator, in a small firm, is subject to a personal fine for failing to notify an employee of his or her COBRA rights at each step of the termination or hiring process. COBRA provisions include advising all new and terminated employees, and all spouses, of their COBRA continuation rights in writing. Be sure that those electing continued coverage are removed from the plan as soon as they become covered under a new plan.