A group health insurance policy is issued to a company, and employees of that company receive benefits according to the terms of the policy. Group health insurance is generally “guaranteed issue,” meaning that all individuals who meet the eligibility requirements determined by the company qualify to receive coverage, regardless of their individual health conditions.
All employees get the same or similar level of coverage and participate in the same network of providers. Premiums are adjusted annually and may be shared by the employer and employee (most insurers require the employer to pay at least 50 percent of the employee’s premium).
The main advantage of group health insurance is guaranteed issue—meaning that every qualified employee is eligible to receive coverage. Because of this, however, group insurance can be very expensive for small businesses because they do not have a sufficiently large employee base over which to spread the cost of claims.
High health care expenses incurred by a single person can dramatically increase the cost of insurance paid by each member of the group. Additionally, employees who leave their company cannot continue to participate in the insurance plan, except for those employers large enough (employers with 20 or more employees) required to offer an 18-to-36-month period COBRA option.
Not all small companies will qualify for a true group plan. While the specific qualification requirements will differ between insurers and states, typical eligibility requirements are as follows: - The company has at least two full-time owners, partners, officers or employees.
- The company has either a business license or fictitious name filing, articles of organization, or articles of incorporation.
- The company must fund a minimum of 50 percent of the employee cost of coverage.
- At least 75 percent of eligible employees participate in the group plan.
If your company does not meet these minimum guidelines, you will want to consider a consumer-directed health care plan or individual health insurance program as an alternative to a true group plan.
Small Group Considerations
“Small group” refers to the number of employees in a given company. It can be as many as 100, but is most often 2 to 50.
In this market, health insurance prices have traditionally been based on two factors: - projected cost of medical services in a given geographic area; and
- projected utilization of services.
Cost projections vary across the country. Insurers estimate utilization of services probability on factors ranging from the medical history of your employees and their dependents to age and gender. These details affect plan premiums for you and your employees. If a member of your staff is considered at greater risk, the group will usually pay a higher premium for insurance coverage, subject to established maximums.
The importance of underwriting
All small group health insurers use a process called underwriting. An underwriter analyzes risk factors (including the medical history of each individual) to estimate potential claims and determine a group's insurability.
The insurer's goal? To offer coverage at a fair price and to allow for adequate income to pay future claims and expenses. Under small group regulations in most states, insurers establish a base rate from which they are allowed to deviate up or down by a certain percentage based on risk assessment (using a Risk Adjustment Factor—RAF).
Regardless of whether you are a small company or a Fortune 500 giant, you want to make sure you are getting your money's worth out of a health plan. It's important to weigh the pros and cons of each choice when selecting a plan. While premiums vary among different insurers, it is important to recognize that there can be substantial differences in the benefits provided and in the amount your employees must pay out-of-pocket for services.
The main types of group health insurance available in today's market are: HMO, PPO, POS, and Limited Medical ("mini med"). A brief description of these products follows.
Health Maintenance Organization (HMO)
Health maintenance organizations (HMOs) are the oldest form of traditional managed care group health plans and, generally, one of the least expensive options for businesses. HMOs serve a designated geographical area.
An HMO may be a single entity of providers and facilities under one roof, or a network of providers and facilities. In both cases the employee must choose a primary care physician, who acts as a gatekeeper for allowing the employee to seek other care.
Their relative low cost and lack of paperwork have made HMOs popular choices for businesses. But their lack of flexibility has made them less desirable to employees, who find that they may have to change their health care providers and must obtain a referral before visiting a specialist within the HMO network. Insureds have no coverage for care outside the network.
In addition, to combat the rising cost of health care and to remain competitive, many HMOs are now charging deductibles or increasing copayments. This may make HMOs less attractive to employees.
HMOs typically still offer among the lowest costs for businesses, according to a number of surveys, and may be the appropriate choice if your business operates in one geographical area. However, if you have operations in more than one area, you may have to contract with different HMOs, which may differ in price, services, and reliability. In that case, you should engage an insurance representative who has the resources to package coverage by several different HMOs.
Preferred Provider Organization (PPO)
Preferred provider organizations (PPOs) are managed care networks of providers. A PPO often covers more than one geographical area.
Generally, PPOs are favored by those who believe that greater choice and flexibility are worth paying higher premiums and deductibles. A 2003 survey by the Kaiser Family Foundation found that the majority of workers in the United States covered under group health insurance—54 percent—were covered by PPOs.
PPOs are popular mainly because they carry fewer restrictions than health maintenance organizations (HMOs). For example, no referral from a primary care physician is needed. Workers are free to seek care outside the network, although at a higher out-of-pocket cost.
Costs are rising faster annually for PPOs than HMOs or consumer-driven health plans (CDHPs). According to one study in 2006, the average cost for a PPO rose 7 percent to $6,932 per employee; HMOs rose 6.5 percent to $6,616. The average CDHP rose 5.3 percent to $5,770. The survey said employers expect that rate of increase to continue.
Point of Service (POS)
A point of service (POS) plan is a hybrid of the PPO and HMO models. As with an HMO, participants must choose a primary care physician in order to receive HMO-like benefits. They are able, however, to obtain care outside of the network subject to higher deductibles or copayments through network and non-network providers.
These plans are popular with some employers because they support cost savings comparable to HMOs, yet provide enhanced levels of employee choice. However, they tend to have higher premiums over time than PPOs and HMOs.
Limited Medical
Used primarily by businesses that employ a considerable number of hourly-wage, temporary, part-time, or transient employees (such as fast-food restaurants), a limited-medical plan, also known as a “mini med,” can be a lower-cost alternative for group health care. This type of highly customizable plan provides an employee access to prescription drugs and basic care for about $50 to $150 per month, as opposed to the national average of slightly more than $300. The employee pays all of the premium.
Companies such as Wal-Mart and McDonald’s Corp. offer their employees mini meds.
There are two types of plans: - Indemnity plans pay the provider a fixed rate for medical services; the member is billed for any difference. Typically, no reimbursement claims are required.
- Copay plans pay a percentage of customary charges, and the member pays the difference.
Because there are benefit caps, you may be able to pay less for a plan, and cost increases may be slight. Most plans offer discount services when accessed through preferred-provider (PPO) networks.
These plans pay first dollar in most instances, resulting in the employee not having to pay a copay or deductible.
Although many insurers sell limited medical coverage, you must be sure that you wish to furnish your employees basic care only; mini meds do not pay catastrophic coverage. Your employees also must be aware of what these plans are all about. What does it take to qualify my company for a group health plan?Small group health coverage is an employer-sponsored plan. In many instances, it is considered a contributory plan (employees contribute to the cost of the premium) and also requires a mandatory 50 percent minimum contribution from the employer of the employee rate. Group plans also require up to 75 percent participation of full-time active employees within a company.
How long does it take to get a quote?
Small group quotes take two to four business days to process, following receipt of the census data. To request a quote, click the Preferred Provider tab and follow the instructions.
What can I do to help control my group insurance premiums?
Consider the following cost-containment strategies to see how they might work for your business. - Consider managed care. HMOs are generally less expensive than PPOs and, in many cases, offer a more comprehensive package of services, including preventive care, annual exams, and wellness programs. With managed care, your employees receive competitively cost-efficient quality care.
- Offer your employees dual choice. Typically, this is a choice of an HMO and PPO or HMO and POS. Instead of an employer choosing one plan for all employees, dual choice lets employees choose the type of plan that meets their needs and budgets. Employers generally pay a portion of the premium, and the employees pay the balance.
- Raise your employees' deductibles, copay, and/or contribution percentages.Employees should have a strong financial motive to be economical when choosing providers or using medical services. This doesn't mean an employee should hesitate if he or she is sick. It just means that an employee should not needlessly use plan services.
- Focus on preventive care. Make your workplace a healthy zone. Encourage company exercise programs or intramural sporting leagues. Develop prevention and wellness activities. Make casual Friday into yoga or aerobic Friday. By keeping your workers fit, healthy, and relaxed, you can help avoid unnecessary health care costs. You can further improve your environment by offering healthy vending machine snacks, adopting a no-smoking policy (with financial incentives to quit), and providing passes and discounts to fitness centers.
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