Health Insurance Facts and Terms for Business Owners
Employers have the final say in what benefits they offer, but health insurance coverage will soon be required for companies employing more than 50 people. The majority of American businesses, however, employ fewer than 50 people, and they will remain free of mandatory health plan requirements.
Small business owners still need to offer some kind of health plan to remain competitive and attract the highest caliber employees. The following facts and terminology are essential knowledge for small business owners.
Group Insurance Terminology and Facts
Business owners realize many benefits by offering group coverage to their employees.
- Small companies can compete with larger organizations to attract the best talent.
- Current employees will remain longer if they have suitable health coverage, and this can save on expenses needed to train new people.
- The Affordable Care Act, official name of health reform, offers businesses with fewer than 25 people tax credits to make insurance plans more affordable.
- The costs of administration can run high for small businesses, since these costs often run the same for small or large companies. The Affordable Care Act sets up exchanges, which small businesses can join to reduce their premiums and administrative costs.
- Insurance companies underwrite policies by assessing the degree of risk. The larger the group, the less risk each individual member will have when expressed as a percentage of the total number. Group insurance allows lower premiums because the risk pool includes a larger number of individuals. Joining an exchange of similar businesses will increase the pool and reduce premiums.
Choosing a Group Plan
Owners can choose from two types of group insurance plans.
- Indemnity or fee-for-service plans: These are traditional plans that formed the heart of the industry in years past.
- Policyholders can choose their doctors and medical service providers.
- Employees must file their own claims, but doctors will often provide filing assistance.
- Deductibles and co-payments are the amounts employees must pay out of their own pockets. The higher these numbers are, the lower insurance premiums will be.
- Managed care plans: Greater numbers of modern employers turn to these group plans because they offer lower premiums.
- HMO: The initials stand for health maintenance organization. These insurance plans provide a network of medical service providers. Employees must choose a primary care physician, and this doctor will provide most routine care. If a patient needs additional treatments or specialist consultation, then the doctor must approve the choice or insurance will not cover the expense.
- PPO: PPO stands for preferred provider organizations. These plans cost more than HMOs because they offer greater flexibility.
- Employees still receive a list of recommended doctors, but they do not need to choose a primary doctor.
- Employees can use any doctor or specialist on the list and receive full benefits.
- If patients go outside the network, they must make a higher co-payment.
- POS: Owners can choose an option that combines features of HMOs and PPOs. Point-of-service plans require policyholders to choose a primary care doctor. The doctor makes recommendations, but employees are free to make their own choices. If employees decide to seek outside treatment, they will receive a limited benefit and must file their own claims for reimbursement.
- HD HSA plans: Owners can choose high deductible plans – more than $1,000 annually – and enjoy premium savings. Health savings accounts allow employees to save money tax free in dedicated savings accounts. The money can be used to cover deductibles and covered routine care expenses. Benefits of the arrangement include the following advantages:
- Employers can contribute to the fund, and employee contributions will not be subject to FUTA and FICA taxes, saving employers money.
- The funds continue to accumulate if not used.
- The HSA money can be rolled into an IRA.
Other Important Terms
Employers must pay 50% of premiums for each employee. The insurance must be available to any qualified worker, regardless of age or pre-existing medical conditions. Employers can pay for dependent coverage, or employees can pay the additional premiums themselves. The following terms might also prove important for employers to understand:
- Guaranteed issue: This term means that insurance companies must accept all employees in the group.
- Portability: This refers to the ability to continue insurance coverage after leaving a place of employment until workers can qualify for coverage at their new jobs.
- Ratings protection: Group policies have limits on how much they can charge if the group pool offers substantial risk of higher medical claims.