Planning Health Insurance Benefits

by mark.shead on February 14, 2007

One of the biggest benefits employees look for in a job is health care insurance. Employers on the other hand see health insurance as once of the biggest expenses. However, by understanding the the value of insurance for your employees, most employers can come up with a plan that offers great benefit to the employees without letting the cost get out of hand.

High Deductibility Health Insurance

The more an insurance company expects to pay, the more they charge you. So if you look for a plan that pays for every single health related expense, the premiums will be quite high. On the other hand, the less the insurance company expects to pay the lower the premium. By choosing a plan with a high deductible, you can offer insurance with a low cost per month.

At first look, this seems like it isn’t giving your employees much of a benefit. If you chose a plan with a $5,000 deductible, they could be liable for $5,000 per year in medical expenses. For a younger person, it is likely that all their health expenses will be below the deductible amount, so the insurance will pay nothing. However, most people overlook the price negotiation that insurance companies do.

Health Insurance Contract Pricing

Most insurance companies have negotiated rates with health care providers. In other words they go to each hospital and doctor and say, “We’ll send our people to you if you are willing to accept our standard payment rates”. So instead of charging $300 for an office visit, the insurance company may say that they will pay $60.

If your insurance is structured correctly your employees will get the lower negotiated rate even if they never meet their deductible. That means if they would normally have had $5,000 in medical care for the year, the negotiated rate could easily be only $1,000.

This way, the insurance is helping save them money, even if insurance doesn’t end up paying for anything.

Getting the Insurance Company’s Pricing

To help make sure your employees get the insurance company negotiated rate for health care, you need to try to find an insurance company that handles the billing–even for items that are below the deductible. Some companies basically just say, “pay for everything yourself and start sending us the bills once you go over the deductible.” Unless they have changed, this is how Humana works. The problem with this is that the doctor and hospital are charging you directly, so they are going to charge you the higher rate.

Employer Self Insurance

Sometimes it makes sense for an employer to “self insure”. This means that they employer will pay for medical expenses directly or reimburse their employees for medical expenses. When large companies do this, they still will take out an insurance policy to cover expense that go over a large amount–say one million dollars. Smaller companies will often self insure for dental benefits because the expenses tend to be much lower.

For a small company the best mix for self insurance is to get a health insurance with a high deductible. For example, say that each employee is given an insurance policy with a $10,000 deductible. This insurance will probably cost the employer very little because the deductible is so high. The company then reimburses each employee for the first $10,000 of medical care. Optionally the company can establish their own deductible. For example, the company can offer to pay for all expenses after the employee pays for the first $2,500. Since insurance kicks in at $10,000 the company would only be liable for $7,500 of health expenses per employee.

In setting up a system like this, it is important for the employer to make it very clear what is covered and what is not. Usually following the same standards as your insurance company is the easiest. Also make sure that employees are billing their medical care first to the insurance company so you are only paying the insurance company contracted rates as discussed above.

Health Savings Accounts

Another benefit of high deductible insurance policies are the health savings accounts. These are special savings accounts that employees and employers can contribute to with pretax dollars. The accounts can be used for health related expenses. Unlike some of the older types of health savings accounts, the money stays with the employee until they spend it. It doesn’t zero out at the end of the year and it stays with the employee even if they change employers.

By offering your employees insurance with a high deductible along with a health savings plan where you make contributions, you can let them see the benefits you are providing. If they see an account where you are putting an extra $100 per month for them to use for health care, it is much more noticeable than spending an extra $100 per month on insurance to try to lower the deductible.

Health savings plans appear to be more liberal in what they will pay for than most insurance companies, so they will often give your employee the ability to pay for items that wouldn’t be covered by insurance anyway. Also if an employee doesn’t use all the money in their savings account it will accumulate and they can eventually use it for other things when they retire.

In Summary

In summary, health insurance can be one of the most daunting and expensive part of dealing with employees for a modern small company. By doing careful research and understanding the system, employers can offer their employees more value while spending less money. When looking at changing or implementing insurance you should consider the age and health of your average employee to find a plan that will give the greatest benefit to the most people possible.

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