Insurance 101

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.

(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.)

Insurance Types

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 sources.

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 not covered.

Indemnity
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.

Basic Hospital
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.

Stand-Alone Life
This plan type provides life insurance but does not include any other coverage.

Stand-Alone Dental
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
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.

Insurance Coverage

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 their coverage.

Covered Health Services -- There are many differences between the thousands of insurance plans available today, but every major health plan covers the following expenses:

• 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 covered.

Obtaining Insurance -- Some Issues

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:

• Marriage
• Divorce
• Death
• 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
• Gender
• 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:

• Premium schedule -- cost per employee per month
• Benefits schedule -- general overview of the benefits provided
• List of doctors in the network

Administering the Insurance Plan

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 quickly.

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 policy
• 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.

Conclusion

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 company.