Choosing the right insurance plan for your employees can be a challenge. Here are some basics to get you off to a good start.
In this basic guide to small-business health insurance you'll
find useful information to help you select an insurance policy.
Choosing the right insurance for your employees is one of the most
important decisions you can make for your company. With a little
planning, forethought, and effort, you can make an informed decision
about the right benefits for your employees, at a reasonable cost.
For your convenience, we have divided the topics into sections.
We highly recommend that you review these subjects with a licensed
insurance broker to help you understand the finer points of constructing
and maintaining a group insurance program.
Administering the Insurance
(This guide is provided to you as a general overview of employee
benefits. Every employer's needs are different. Any advice in
this article is general in scope. We strongly encourage you to
contact a licensed small-group insurance broker about your specific
needs. Please feel free to contact us for the name of a broker
in your area registered with us.)
HMO -- Health Maintenance Organization
A primary care physician (PCP), who will be compensated by the insurance company,
must be selected from the network at the time of enrollment. This PCP will
manage all care provided to the insured person. In order to see a contracted
specialist or receive services from a hospital, a referral must first be
obtained from the PCP, except in cases of life-threatening emergencies. No
benefits are provided if the insured goes out of the network. There are minimal
to no co-payments, no annual deductibles, and no claim forms.
PPO -- Preferred Provider Organization
This is similar to an indemnity plan, but with a network of physicians. The
insured is allowed to choose a doctor or hospital from a preferred-provider
list. Preferred providers are doctors, hospitals, and other non-network providers.
They have agreed to group pricing and will follow the procedures and policies
of the plan. Lower fees are arranged with the network of providers, giving
insureds a financial incentive to stay within the network. A higher cost
or co-pay is generally required for medical services obtained from outside
POS -- Point-of-Service
Similar to an HMO, this healthcare delivery method requires selecting a primary-care
physician (PCP), who coordinates the insured's healthcare needs.
EPO -- Exclusive Provider Organization
Any physician within the contracted network can be visited without prior approval
or referrals. Services received outside the network, however, generally are
Also referred to as fee-for-service, an indemnity plan allows absolute freedom
in selecting physicians or medical facilities, and permits self-referral
to a specialist. A yearly deductible must be met before the insurance company
pays coinsurance. Coinsurance is set at a predetermined rate in which the
insurance company pays that percentage of costs. This plan requires the use
of patient claim forms and reimbursement checks.
With a basic-hospital plan, in-hospital (inpatient) care is the only service
covered; other services are not offered. Generally, benefits must be obtained
from a contracted, approved, or network facility. Services received outside
of this network may receive less coverage or no coverage at all.
This plan type provides life insurance but does not include any other coverage.
This plan type provides dental coverage but does not include any other coverage.
Stand-Alone Rx / Stand-Alone Prescription
This plan type provides prescription-drug coverage, which generally means the
insured person can obtain prescription drugs at a set price of a few dollars,
but does not include any other coverage.
LTD -- Long-Term Disability
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Long-term-disability plans provide income for an individual who is no longer
able to work due to an illness, disease, or non-occupational injury. Compensation
is either a flat amount or one based on a percentage of regular income (often
50% to 60%). To qualify, most plans require that the individual be a full-time
employee for at least one year before the disability and be under the age
of 65. Short-term disabilities are generally covered by other health plans.
COBRA Benefits -- The Consolidated Omnibus Budget Reconciliation
Act of 1985 (COBRA) requires companies with 20 or more employees
to offer individuals who would otherwise lose their insurance coverage
as a result of termination the option to continue their group healthcare
coverage. Some states require that smaller companies -- as few
as two employees -- offer terminated employees the ability to extend
Covered Health Services -- There are many differences between
the thousands of insurance plans available today, but every major
health plan covers the following expenses:
Common exclusions include the following:
- Treatment of illness, disease, and accidents
- Medical, surgical, and emergency care
- Inpatient (hospital room) and related services
- Outpatient treatment
- Doctor visits and treatment
- Nursing services
- Diagnostic care (such as, X-rays)
- Prescription drugs
- Dental, vision, and hearing care due to accident or injury
- Pregnancy and childbirth
- Durable medical equipment purchase or rental
- Specialty care (such as, intensive-care unit)
- Any other medical necessity
- Work-related injuries covered by worker's compensation
- Services not recommended by a physician
- Charges deemed to be beyond customary and reasonable
- Cosmetic surgery
- Experimental procedures
In addition, some states require that insurance companies provide
coverage for mental-health and/or substance abuse. Most insurance
companies, of course, allow additional coverage to be added to
a policy with a related change in the premium amount.
Dental Care -- Dental care can either be part of a medical
policy or it can be a separate policy altogether. Basic dentistry
services are covered, and orthodontics and surgical procedures,
although usually not included, can be added for an additional charge.
Routine examinations and cleanings are usually provided free of
charge. One important point to remember, however, is that most
dental-care plans have an annual maximum. Any costs exceeding this
amount are not covered.
Disability -- Disability benefits are periodic payments
to an insured who can no longer work due to illness, disease, or
a non-work-related accident. There are three types of disability:
paid sick leave, short-term disability, and long-term disability.
Other programs, such as worker's compensation and state-run temporary-disability
programs, also cover disability. Social Security provides a degree
of benefits as well.
Preexisting Conditions -- Preexisting conditions are defined
as physical or mental conditions for which medical advice, treatment,
diagnosis, or care was recommended or received within six months
of the date of enrollment in the new plan.
Under normal circumstances, employees are covered immediately
by their group healthcare plan. According to federal law, however,
preexisting conditions can result in an exclusion of coverage for
up to 12 months. This period can be eliminated if the insured had
prior coverage on a month-to-month basis. For example, if someone
was covered by a previous plan for 12 months and moved into a new
plan, there would be no exclusionary period. A break of more than
63 days, however, negates this provision. There may be additional
state laws affecting the exclusionary period. Check with your broker
for more information.
With preexisting conditions, treatments relating to that condition
may not be covered, but other illnesses or injuries are normally
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Obtaining Insurance --
Decide Who Should Be Covered -- Before selecting a group
health plan, you must decide who will be covered. It is traditional
to cover only full-time employees who have been with the company
for a certain amount of time. Coverage can be extended to include
spouses and other dependents, as well as part-time employees. Insurance
companies generally impose minimum requirements on the definition
of dependents, and, once these requirements are in place, you are
obligated to remain consistent with regard to who qualifies for
coverage and who does not. To alter this definition after it has
been established or to give the impression that the definition
differs depending on the individual could be a violation of state
and federal discrimination laws.
Deductions for Benefit Premiums -- In most cases, employees
pay for a portion of their insurance coverage. The employer often
deducts these costs from their paychecks. Insurance carriers generally
provide companies with all the forms needed to handle this. In
many cases, these documents are completed at the time of enrollment.
Always be sure to get written permission from employees before
deducting anything from their paychecks. Deductions from Section
125 Plans are from gross rather than net income (in other words,
they are pre-tax).
Enrolling Employees / Changing Coverage -- After eligibility
requirements have been determined, it is important to provide employees
with straightforward information on the plans available and any
deadlines that apply.
Employee-benefits plans typically impose limitations on when you
or your employees can make any changes to the existing coverage.
These are often events such as:
- Birth or adoption
- Changes in the employment of an employee's spouse
- Changes in work hours
- Unpaid leave of absence.
Gathering Employee Information -- To obtain group health
insurance, certain information is required. This is commonly known
as the census. The census covers all pertinent information on each
employee who will be enrolled in the plan. The information most
commonly asked for includes the following:
- Full name of each employee
- Age or date of birth
- Home address
- Information on any dependents who will be covered
Opting Out of Insurance -- Some employees may want to forego
the insurance coverage if they are already covered under another
plan, such as a spouse's group insurance, or if they feel they
can't afford the additional expense. You can a) allow them to do
so, or b) require that they obtain coverage regardless. If they
do opt to decline coverage, be sure to obtain this in writing for
your records. This confirms that the employee was given an opportunity
to enroll and that he/she understands any restrictions that may
apply to future participation. Remember, however, that if employees
are expected to pay for part of their premiums, they should not
be forced to enroll.
Reading and Comparing Proposals -- When researching insurance
plans, you will obtain many different proposals. That is why we
offer simple comparisons of each plan's features. You will want
to discuss the details of each proposal with your broker. The most
important factors to check are the following:
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- Premium schedule -- cost per employee per month
- Benefits schedule -- general overview of the benefits provided
- List of doctors in the network
Administering the Insurance
Acting as Employee Liaison -- Employees generally expect
their employer to assist them if they run into any problems concerning
their insurance policies. These difficulties typically include
things such as getting new insurance cards or getting claims paid
in a timely manner. Even if your company has a designated individual
to deal with insurance matters, employees will almost always speak
to the employers first.
Always remember that your employees' concerns are valid and should
be addressed. In most cases, you simply need to have your employees
contact member services at the insurance company. When they do
so, it is important that they have their insurance cards, group
and employee numbers, and claim numbers, as well as the names and
dates relevant to the claim. Be sure to have them document any
problems that arise.
If this is not sufficient and you must become personally involved,
contact your insurance broker or the customer-service representative
at the insurance agency. They will usually get the problem resolved
Administering Your Health Plan -- Most administrative functions
are handled by the insurance company through which you have coverage.
You are still responsible, however, for a fair amount of work.
The primary tasks include the following:
- Enrolling new employees and making status changes as needed
- Deducting premiums from employee wages and remitting them to
the insurance company within the grace period allowed under the
- Acting as liaison between employees and the insurer
- Terminating benefits and extending COBRA coverage
- Complying with reporting and disclosure requirements
Terminating Benefits -- If an employee leaves the company,
you must terminate that individual's coverage (this is done easily
using forms provided by the insurance carrier) and provide the
employee with an offer to extend health benefits according to COBRA
and any state laws that may apply.
This has been a brief overview of employee benefits. As with any
subject that is complicated in its details, you should always consult
an expert in your decision-making process. An insurance broker
can answer any additional questions you might have after reading
this primer as well as guide you in planning benefits for your
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