Group Health Care Insurance

When it comes to health care coverage, there are really only two options:  individual and group health care plans.  In this publication, we're going to talk about the group coverage options that might be offered at large companies, and how small businesses can join together to offer group health care to their employees too.

Advantages of Group Health Insurance

The single biggest advantage of group health insurance is lower cost.  The savings comes from the ability to spread the overhead expenses to administer the program over a larger number of participants or membership base.  With the double digit rise in health care cost over the past several years, more small businesses are seeking the financial security offered by larger groups.

Along with the insurance payments for medical services, there is back office work such as the processing of claims, collection of premiums, and telephone support.  All of these activities are expensive to provide.  The more individuals covered in a plan, the easier it is to spread the cost of this type of support across all participants.  This is what makes group health insurance so attractive to small businesses. 
 
With larger groups, the total value of the account to the insurance company is greater.  This means the plan is able to offer value-added benefits such as health care newsletters or specialized medical programs such as well care.  Therefore, larger groups can leverage their size to extract more value from their health insurance providers.

Types of Group Health Insurance

There are two ways to view group health insurance.  One way is through the lens of the business owner, the second is through the eyes of the participant.  Small businesses are constantly balancing their ability to control costs and retain employees by offering competitive benefits.  They need to balance cost with perceived benefit or value to their employees.

The different types of health insurance plans available today provide individuals and small businesses with the opportunity to participate in group insurance in the following ways:

• Small Employer Groups - insurance companies can group together certain industries to form larger groups.  These smaller groups can then turn around and provide their employees with benefits that are otherwise reserved for larger groups.
• Associations / Affiliations - a second way that individuals can take advantage of the lower premiums associated with larger groups is through affiliations or associations.  Examples of associations and / or affiliations include credit card companies, church groups or parishioners, or via clubs such as AAA.
• Fully Insured Groups - typically, this type of health insurance is reserved for mid-to-large businesses, whereby the company arranges for health care coverage on behalf of their employees.
• Self Funding Groups - reserved for larger companies, in this type of arrangement the company pays the actual cost of providing health and medical services to its employees.  The health insurance company provides telephone and claims processing support, and makes money through a program administration fee.

Types of Group Coverage

Within a given plan, there are often different types of health care coverage that can be offered to employees.  Examples found in the marketplace today include indemnity plans, preferred provider organizations, and health maintenance organizations.

• Indemnity Plans - sometimes referred to as a fee-for-service plan, this type of arrangement offers the employees the most flexibility in choosing their primary health care provider or medical doctor.  These are usually the most expensive plans offered because the insurance company pays fees as determined by the doctor.
• Preferred Provider Organizations - preferred provider organizations supply participants with a network of hospitals and doctors; however, they may also allow policyholders to seek medical services outside of the network.  When this happens, deductibles, copayment, and coinsurance amounts may increase.
• Health Maintenance Organizations - perhaps the least expensive group health care coverage a company can provide is via a health maintenance organization or HMO.  The fees charged by doctors and hospitals are negotiated ahead of time to provide participants with a health care network.  The well care programs offered by HMOs are often the most comprehensive offered.

There are several variations of these offerings, but most plans will contain the basic features described for the above three coverage types.  For example, indemnity plans might have a cap on what they will pay a doctor based on a schedule of "usual and customary" fees.

Comparing Group Health Insurance

Now that we've outlined the ways that employers can offer group health care insurance to their employees, and the types of coverage that can be offered, the next logical question is:  How can I compare group insurance quotes?

The first step is to decide how you want to share in the cost of providing health care coverage with your employees, and the sources of those costs.  Typically, out of pocket costs are limited to:

• Monthly Premiums - these are the monthly payments associated with the actual cost of providing health insurance.  As an employer, you might decide to have your employees share in the monthly cost of the company's health care premiums.
• Copayments - a copayment is usually paid by the participant at the time that services are rendered.  These are usually nominal fees that range from $10 to $25.  Copayments are considered an out-of-pocket cost for employees.
• Coinsurance - when the employee and employer share in the cost of providing a service, this is called coinsurance.  This out-of-pocket cost usually applies when the employee decides they want to seek services outside of the network of doctors.
• Deductibles - a deductible is the final, and frequently the largest, out-of-pocket cost an employee pays when seeking medical care.  Deductibles are usually satisfied (paid by employees or participants) each year before the insurance company payments start to offset costs.

Saving on Health Insurance Premiums

Finally, if you're interested in trying to save on your health insurance premiums, then there are several steps you can take as a small business owner.

Comparison Shopping

Make sure you seek quotations from more than one insurance company.  This means you are looking for multi-dimensional information.  You're getting quotes from multiple insurance companies, and within each company you're evaluating the various types of health insurance coverage offered.

Deductibles and Cost Sharing

A second way that business owners can help to control their cost of group health care insurance is by transferring some of those costs to employees.  One way to share these costs is by increasing the employee's out-of-pocket costs through higher deductibles, copayments, and coinsurance.  A second method is more direct because it involves sharing in the cost of the monthly health care premiums with employees.

Tax Incentives

Finally, there may be several income tax incentives, or benefits, that you can derive as a business owner when you provide health insurance to your employees.  Premiums paid are usually considered a business expense, and they are fully deductible from federal income taxes.

Health Care Accounts or Health Savings Accounts provide your employees with a way to set health care money aside using regular payroll deductions.  This money is placed into an account on a before-tax basis, thereby providing employees with a way to pay for their out-of-pocket expenses on a before-tax basis.  Unfortunately, this tax benefit comes at a cost.  Participants are usually required to deplete this account or lose the money (use it, or lose it arrangement) each calendar year.

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