Credit: Scott Roberts
PPO. HMO. POS. HRA. HSA. CDHP.
The often-confusing alphabet soup of health care options is not the only factor affecting how many small businesses offer health insurance to employees.
A recent Robert Woods Johnson Foundation study finds that in 2010–11, just 37.5 % of small businesses with fewer than 50 employees offered health insurance as a benefit to their workers. Rising premiums, tax implications, and the effect of the new Patient Protection and Affordable Care Act (PPACA) are key concerns.
What follows is information — by no means exhaustive — to help start the process of evaluating your options.
Since most remodelers have fewer than 50 employees — the threshold for compliance with PPACA’s employer mandate — this article focuses on the health care options for a business with 10 employees.
Step 1: Ask the Question
“You have to go back to the very beginning and ask yourself why you want to offer health insurance,” says Jim Counts, president of Counts Financial Services. Asking and answering this question will lead to other questions that can help you narrow down your decision.
Typical responses, says Counts, include: “To attain and attract good staff”; “Because I think I have to”; “Some employees have asked for it”; “It’s the morally responsible thing to do.”
If your answer is that a couple of employees have asked about it, then you need to ask whether you want to offer it to those staff only or to every employee. And then, will you have options only for individuals or for dependents as well?
If you decide to offer it, then you have to ask how much you’re willing to — and can afford to — subsidize. According to the Society of Human Resource Management, in 2013, average health plan premium costs per employee are projected to be $11,188, of which average employee contributions to the health plan premium would be $2,385. Insurance carriers usually require an employer to pay at minimum 50% for an employee’s individual coverage.
Let’s say that under a plan you chose, all 10 employees are eligible, i.e., they are full-time, work 30 or more hours per week, aren’t covered by a spouse’s plan, and all enroll. If, for example, the premium is $300 per month, you, the employer, would pay $150 per month per employee, or $1,500 per month.
You’ll next decide whether to subsidize for dependents. According to SHRM, typical family health premiums averaged nearly $16,000, with employees paying more than $4,300 of that.
To help decide whether you can afford to offer insurance, you need to look at your overall budget and entire compensation package — wages and other benefits you offer such as retirement plans and disability.
There’s no rule regarding what percentage of your revenue you might want to put aside for health care, but many employers put about 20% into a total benefits package.
Look at your margins and determine what you can afford to set aside to meet the market value, says Doug Delp, of HR and benefits company The Delp Group, in Green Lane, Pa. “It’s market-driven and depends how a company wants to differentiate itself.”
The premium is the amount paid (usually each month) to an insurance carrier for health care coverage.
The more benefits you offer that are paid by the insurance carrier, the higher the premium will be.
How insurance carriers set the premium will change in 2014, but for now, carriers in most states do medical underwriting — a screening system to find an applicant’s health and risk factors. These include age, gender, demographics, geographic location, and preexisting conditions.
For Small Group Plans, insurers in many states also look at how often employees use a plan and base renewal rates on that.
In 2014 all this will go away and the main factors considered will be age, gender, industry, and whether a person is a smoker or non-smoker. (Some states, such as Maryland, have already undergone “small group reform,” which outlaws medical underwriting.)
“What’s really happening,” says Doug Delp of The Delp Group, “is that everyone is going to be sharing in everybody else’s risk. A healthy or younger group that had lower rates this year will, in 2014, see its rates rise dramatically — on average 32%.” On the other hand, a group of older unhealthy people who use the plan heavily and whose rates are high should see a decrease in rates.
Step 2: Take a Break
You already wear lots of hats. If you decide to offer insurance, there’s no reason to add the burden of figuring out all the options. Find a broker.
In most instances, it’s a misconception that using a broker will raise your costs. Typically, you don’t pay the broker, the insurance carrier does (rolled into your premium), and the premium rates charged will be the same whether you go through a broker or you go directly to a carrier. And, if you ask five different brokers for quotes, you’ll get the same pricing from each.
When looking for a broker, get a referral from another remodeler. Make sure the broker focuses on health insurance; don’t settle for someone who does health insurance on the side.
Step 3: Choose a Carrier
Your broker will do the shopping and make suggestions, but you should be informed. Ask about the following:
• Provider network: How many doctors participate with a particular carrier?
• Flexibility: Does the carrier have a variety of plans to fit your needs — traditional co-pay, deductibles, high-deductible plans?
• Work ethic: A carrier should get high marks in reputation, customer service, and claims processing, and have a strong network.
According toAmerica’s Health Insurance Plans, an industry trade group, in 2011 11.4 million people, up from 10 million in 2010, had HDHP plans.
HDHP supporters say consumers will think more carefully about their health care; detractors point out the problems for people dealing with chronic illness. All agree that HDHPs will lower costs for individuals for medical services. Many already cover preventive care, vaccines, and wellness exams. In 2014, this type of coverage will be required.
“The biggest hurdle to [an HDHP] is how to inform employees,” says Martha Stinson, owner of Trace Ventures, in Nashville, Tenn. Stinson faced a 24% renewal increase when she switched to an HDHP. She contacted Bernard Health, which has four health care “retail” stores in three states, to help her.
Now Stinson and her employees have access to a consultant who walks them through their plans and will, for example, help them find where to buy the least expensive prescription or procedure. Trace gives each employee $200 — seven out of 10 employees opt for insurance — seed money to start their HSA and then pays 50% of their individual premiums. There’s a $3,000 deductible. Employees can contribute up to $3,100 for an individual HSA ($4,100 if they’re over 55).
Don’t let the countless choices in health insurance plans, combined with many new regulations as a result of PPACA scare you away from evaluating the advantages of offering health benefits to employees, Delp says. “It still all comes down to a business decision on what it takes to differentiate your company as an employer of choice for top talent. Start with a clear understanding of why you are considering offering health insurance benefits to employees, determine what type of budget you have to work with, and then talk to a professional.”
Step 4: Select a Plan
You want to balance the amount of your employees’ contributions to the premium through payroll deduction and the amount the employee will share in the cost of medical care through co-pays and deductibles.
Plans with higher co-pays and deductibles usually have lower monthly premiums but higher out-of-pocket costs for employees’ actual medical care. Many employers offer an affordable “base” plan with higher co-pays or deductibles, and then allow employees to “buy-up” to a plan with richer benefits that has lower co-pays or no deductibles.
Your broker will show you plans that will work best for you and your budget. “You can literally have hundreds of proposals with all the different plan designs available,” Counts says. “Compare plans two at a time from each category to make it easier.”
As you choose a plan, here are some terms you might run across.
Small Group Plans: Employers with two to 50 employees can offer these. Employees can use pre-tax dollars for their portion of the premium. With an individual plan, employees have to spend at least 10% of their adjusted gross income on medical expenses before seeing any tax advantages. For employers, group plans cut down on administrative burden.
Managed Care Plans,which usually focus on preventive care, include:
HMO (Health Maintenance Organization): Doctors are part of the HMO, which provides a variety of medical services on a pre-paid basis. Health care providers receive a fixed monthly fee from the insurance company for certain basic medical services regardless of whether the patient uses these services or not. There are no out-of-network benefits.
PPO (Preferred Provider Organization): A contracted group of medical providers who have agreed in advance as to what they will charge for the services they provide to the member’s employees.
POS (Point of Service): Has elements of both an HMO and a PPO.
Consumer-Driven Health Plans or CDHPs — in which a patient has more control over his or her health care benefits. CDHPs include:
HDHP (High-Deductible Health Plans): The insured pays a higher annual deductible and a lower monthly premium. The minimum deductible is $1,250 for an individual and $2,500 for dependents. A patient’s out-of-pocket expenses, which include the deductible, are capped at $6,250 for an individual and $12,500 for families in 2013.
HSA (Health Savings Account): Must be paired with a qualified HDHP. An employer or an employee can fund the account with pre-tax dollars to be used for medical services. The 2013 annual HSA contribution limit for an individual with self-only HDHP coverage is $3,250, and the limit for an individual with family HDHP coverage is $6,450. At the end of the year, any unused amount is retained by the employee without penalty; in fact, the money can be saved and used to fund retirement at age 65. It is then subject to taxation.
HRA (Health Reimbursement Account): Similar to an HSA, but it can only be funded by the employer. There are no limits on the deductible. Counts suggests that employers fund via HRA rather than an HSA. With an HSA, once the employer funds it, the money becomes the employees’ money. With an HRA, the employer only pays out if there is a claim. Most employees won’t use the plan Counts says. “It’s the 80-20 rule, with 20% of your employees costing 80% of your insurance.”
—Stacey Freed is a senior editor at REMODELING. Find her on Twitter at @SFreed or @RemodelingMag.