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There are nearly 28 million small businesses in the US and less than half offer health insurance to their employees. While many agree providing some type of health coverage is an important tool in recruiting and retaining the best talent, it is also one of the most expensive and significant financial investments an employer will make. Therefore, it is critical that business owners review all the available options before settling on the right plan that bests suits their needs. While there are many different plans and types of coverage available below are several options most suitable for small business employers.
The Small Business Health Options Program (SHOP) can be a good option for eligible small or medium size businesses. Eligible employers with less than 50 or 100 full-time equivalent employees (FTEs), depending upon the state, can apply to purchase medical and dental coverage any time of the year for their employees through the “SHOP Marketplace” and also claim small business health tax credits.
Private Health Exchange
Private health insurance exchanges are online health insurance marketplaces run by a private sector company or nonprofit. Employers can offer employees a defined contribution to purchase medical plans, and select coverage from one or several participating insurance companies. Vision and dental plans can also be included. This type of plan can be individual or group-based.
Joining a Co-op is a more traditional health insurance for small groups. A Co-op is a non-profit organization in which the same people who own the company are insured by the company. Co-ops offer insurance through the Marketplace. Whether or not a Co-op offers better insurance rates than a small group could get elsewhere depends upon the Co-op and also the regional insurance laws.
Individual Health Insurance
Some small employers may prefer to allow employees to purchase individual health insurance coverage, through the public Marketplace or a broker. Employees may be eligible for discounts on their premiums via the individual health insurance tax credits. Creating an employer-sponsored arrangement where the employees may choose either cash or an after-tax amount to be applied toward health coverage is permissible.
For this type of arrangement, a broker is typically involved to setup contribution allowances, sell the individual policies to employees and provide consulting services to the business. This type of solution is typically best for employers who cannot qualify for group health insurance or are priced out and would still like to start offering benefits to their employees for the first time.
Private Small Group Plan
Nearly 50% of small employers choose Small Group Plans. As a category, this type of policy includes several products with a broad range of costs and features including:
Traditional or Indemnity health plans — also referred to as "fee-for-service" programs — were around before other forms of group insurance hit the market. With indemnity coverage, the employee pays a pre-determined percentage of the cost of healthcare services, while the insurance company pays the rest. The provider defines the fees for services, which will vary from physician to physician.
Known for their flexibility, traditional plans allow individuals to choose their own healthcare providers, with the freedom to access any doctor, hospital or covered treatment. The insured can visit a specialist without a primary physician's referral, even when the insurance company does not deem this a necessity.
Despite the advantages, high costs make traditional plans less favorable for employers. In addition, this type of coverage tends to carry higher deductibles and co-pays, meaning greater out-of-pocket expenses for employees.
Health Maintenance Organization (HMO) is the oldest and most cost-effective form of managed healthcare and the first alternative to indemnity insurance — but it also is the least flexible. Employers or employees pay fixed monthly fees for services rather than separate charges per visit or service.
Since these products utilize a network of doctors, laboratories and hospitals, "contained" HMOs can most efficiently control and reduce healthcare costs, compared to other plans. For coverage to apply, plan members must use in-network doctors and hospitals, or pay for out-of-network doctor appointments. Also, visits to specialists require primary-care physician referrals.
Preferred Provider Organization (PPO) has become the health insurance plan of choice for many employers. A managed-care network of health providers, a PPO contracts with the insurer to provide services to enrolled policy holders. With this arrangement, participating individuals receive significant discounts from hospitals, physicians and other professionals within the PPO.
Less rigid than HMOs, PPOs allow policy-holders to visit non-network providers while retaining some degree of coverage. Out-of-network deductibles are higher, so staying within PPO boundaries means lower out-of-pocket expenses for the insured.
Exclusive Provider Organization (EPO) is a more stringent type of PPO under which employees must use providers only within a specified network of physicians and hospitals to receive coverage. Out-of-network care is covered only in emergency cases.
Point of Service (POS) programs functions as HMO and PPO hybrids. In this system, a primary-care physician gives referrals to other network providers, but plan members are free to go outside the network. In the latter case, a physician referral isn't necessary and some plan coverage still applies. 0ut-of-network costs are greater for co-pays and deductibles. However, if the primary physician refers the patient out of network, (versus patient self-referral), the plan covers more of the bill.
Consumer Driven Healthcare (CDCH) allows people to take a more active role in their healthcare decisions. The idea is that greater involvement leads to more astute decisions in using services. As costs continue to escalate, CDHC is gaining more awareness, especially among employers.
An umbrella term for a range of plans, the most notable CDHC plan combines Health Savings Accounts (HSAs) with high-deductible health plans (HDHPs). With this type of coverage, the savings-account component pays for routine medical care, such as physicals, mammograms and well-child care; the high-deductible insurance component covers more costly emergencies and medical procedures.
The standard CDHC model gives enrollees an annual allotment of Health Reimbursement Account (HRA) funds from their employer to pay for covered services. Unused funds then can be carried over into future years and added to the next annual HRA deposit. HRA funds also can apply to plan deductibles or co-payments, for non-plan IRS-qualified medical fees and even to obtain additional health insurance, such as long-term care coverage. As for which services are eligible for coverage, most CDHC models permit employees to choose from a list of options during the enrollment period.
On the other hand, if an employee drains his HRA, he must meet a deductible gap before being permitted to receive insured coverage under the plan.
Under the healthcare reform law, HRAs and HSAs are still permitted as long as they’re combined with a HDHP and the combined benefits cover at least 60 percent of the individual’s healthcare expenses.