Finding a Small Business Health Insurance Plan that Won't Sink You

Regarding business health 2016 approaches the business community is bracing for changes to the Affordable Care Act (ACA), which has already brought increased health care costs to small business.

Buying small business health insurance is a problem for any new or existing small or medium-size company. If you plan to start a business and are thinking about your health insurance options, your best bet -- if you have a working spouse who has a health insurance plan at work -- is to go with that plan until your new company is up and profitable. Our second piece of advice is to sign up for COBRA before you exit your current job.

There are numerous rules regarding small business health insurance because states regulate the insurance business. There are 50 sets of regulations for the 50 states. That means in some states, an individual entrepreneur working alone cannot get a group small business health insurance plan -- he or she must find an individual policy. In other states, the authorities allow small businesses to band together to form a group small business health insurance plan. In still other states a sole proprietor can form a small business health insurance plan called a "group of one." If you will go into the market for a health insurance policy, talk to a couple of brokers who have access to different companies in the marketplace in order to evaluate different options and then pick the one that is right for you. Business associations would like to offer health insurance plans and in some states they can. But under current rules, there is no way they can offer members a single, strong plan across all 50 states. Rules prevent it.

There is no such thing as cheap small business health insurance plan, a cheap individual health insurance plan, or a cheap dental plan. We have noticed a few cheap plans being advertised on radio and television, don’t believe it; it does not exist.

Small Business Health Insurance Statistics Are Grim

Regardless of where you fall in the current debate over health insurance, the fact remains that when it comes to small business health insurance plans, companies need help. The help they need is not a handout but rather a level playing field. Large companies offer health insurance to their many thousands of employees at a lower cost than small business. Why cannot small businesses, coming together, offer health insurance for many thousands of employees?

Different Plans for Different Folks

As mentioned above, insurance is regulated by the states so plans and rules vary from state to state. Here are a couple of common types of plans, however, that you might wish to learn about:

  • Traditional or fee for service plans (FFS) -- FFS plans mean that health care providers are paid a specified amount for each service they provide by the insurance company. Today it is very unusual for an insurance company to pick up 100% of the fee. Instead, they will often pay "usual and customary" charges. "Usual and customary" charges are open to wide interpretation and abuse by the insurance industry. Hospitals may typically charge $2,500 for a particular procedure. The insurance company, however, may set the usual and customary fee at $750. You will pick up the rest of the cost.
  • Health maintenance organizations (HMO) -- What is an HMO? A health maintenance organization provides paid-for health care as long as it fits within the scope of allowed procedures. HMO care usually costs less than other health plans because it contracts with specific providers of health care and deals with large numbers of people.
  • Preferred provider organization (PPO) -- A PPO or Preferred Provider Organization is a group system of health care that an insurance company organizes. Hospitals and clinics, doctors and other health care providers sign contracts with the PPO system to provide care to the insured people but these providers must accept the PPO’s fee schedule and guidelines for care.
  • Point of service (POS) -- The POS falls somewhere between the HMO and the PPO. When you join up with a POS you must select a "primary care" physician that must be chosen from the health care network…he or she becomes your "point of service." If you stay within the network for your care, all paperwork is completed for you. If you go outside that network, you must handle the paperwork and it will cost you a lot more than staying within the network.

Glossary of Terms

Co-insurance -- The definition of co-insurance is where the health insurance carrier and the insured share a specified ratio of cost in a claim, which may be 80%-20% with the insurance company paying 80%.. Here’s the problem: If a procedure costs $1,000, the insurance company will theoretically pay $800 and the insured $200. What happens often is that the insurance carrier will have a “usual and customary” charge for that procedure, which could be far less than the $1000 being charged by the hospital. Thus, the insured maybe charged $1,000 for a procedure but the insurance company’s “usual and customer” charge for that procedure is only $500. Thus, the insurance company winds up paying only $400 (which is 80% of $500) and the insured has to pay $600.

Co-payment -- -- The definition of co-payment is typically a fixed amount of money that an insured person will pay for something—a procedure or a drug or a service. That is, a doctor’s visit may cost $125 but the insured is subject only to the fixed co-payment, which is perhaps $25 or $40 typically. On drug plans, the co-payment might be $10.

Maximum out of pocket -- The definition of maximum out of pocket is the total amount you must pay “out of pocket” for health care. In many plans that may have the feature where the insurance company pays 80% of all costs while you pick up the final 20%, that cost is not actually capped and you could be on the hook for hundreds of thousands of dollars. Therefore, insurance companies will offer policies that have a maximum out of pocket, which means that that maximum is all you will have to pay no matter how much in health care costs you run up. The lower you set that amount, the more the insurance will cost. Here’s the problem: many insurance companies set an annual cap on how much they will pay or a lifetime cap. If you develop a serious illness, you could quickly run past the annual or lifetime cap. Buy health insurance with great care!

Health savings accounts (HSA)-- The definition of a health savings account is a savings account whereby any individual with a qualified high-deductible health insurance plan can contribute up to $2,900 for individuals and $5,800 for families into this account or HSA. It is a before-tax contribution.

Health reimbursement arrangements (HRA)-- The definition of HRA’s are employer funded accounts that reimburse employees for out of pocket medical expenses that are quailed medical expenses.

Health insurance stipends -- The definition of health insurance stipends is a payment by the employer for a health insurance coverage for the employee. The employee finds coverage on his or her own and then the employer pays up to a certain amount for that plan.

Mini-medical plans -- The definition of mini-medical plans is a plan that offers basic coverage but is less expensive than typical plans. There is no major medical or catastrophic coverage with these mini plans.

Catastrophic coverage -- The definition of catastrophic coverage is an insurance plan that kicks in only after the insured has paid a certain amount of dollars. For example, a catastrophic coverage plan might pay after $5,000 or $10,000 in expenses by the insured or another insurance plan. Some new entrepreneurs that we know of have opted for medical coverage with only a catastrophic plan that pays after $5,000 in expenses. These plans can be had at greatly reduced costs. In an entrepreneur is young, he may want to set up a health savings account. Chances are he or she will not encounter large medical payments but if they do, they pay for the first $5,000 in costs and are covered after that.

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