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Small Business Health Insurance

Providing health insurance for employees - by far the single most expensive benefit offered by employers - is one of the greatest challenges many small businesses face today. As business owners know, health insurance is extremely important to most employees and is therefore a very powerful benefit in recruiting and retaining the best workers. Cost and availability of health insurance are the key issues.

Small group health insurance provided by insurers is regulated by the state of Missouri. However, federal law mandates that an insurer cannot deny coverage to a small business due to the health status or illness of its employees or their dependents. In addition, self-insured health plans (where an employer insures itself), are regulated by a federal law called ERISA (Employees Retirement Income Security Act of 1974). It is rare for a small company to self-insure its health insurance.

Small business owners are not required to offer health insurance to their employees. If an employee chooses to retain their own individual coverage, the employer must make a payment to that employee equal to the defined contribution being made to other employees for their group coverage.

What Kind of Health Insurance Best Fits Your Business?

To help small business owners determine what kind of health insurance best fits their employees' needs and their company's budget, DIFP provides the following information.

Types of Health Coverage

Small businesses commonly offer several different types of health insurance. Major medical plans typically cover a comprehensive array of healthcare needs, including doctor visits, prescription drugs and hospital care. These benefits can be delivered in several different ways:

*Indemnity plans - These major medical plans typically have a deductible - the amount you pay before the insurance company begins paying benefits. After your covered expenses exceed the deductible amount, benefits usually are paid as a percentage of actual expenses, often 80 percent. These plans usually provide the most flexibility in choosing where to receive care.

*Health Maintenance Organization (HMO) plans - These major medical plans usually make the insured choose a primary care physician (PCP) from a list of network providers. A PCP is responsible for managing your healthcare. If you need care from any network provider other than your PCP, you may have to get a referral from the PCP to see that provider. The insured person must receive care from a network provider in order to have the claim paid through the HMO. Treatment received outside the network is usually not covered or covered at a significantly reduced level.

*Preferred Provider Organization (PPO) plans - In these major medical plans, the insurance company enters into contracts with selected hospitals and doctors to furnish services at a discounted rate. As a member of a PPO, you may be able to seek care from a doctor or hospital that is not a preferred provider, but you will probably have to pay a higher deductible or co-payment.

*Point of Service (POS) plans - These major medical plans are a hybrid of the PPO and HMO models. They are more flexible than HMOs, but do require you to select a PCP. Like a PPO, you can go to an out-of-network provider and pay more of the cost. However, if the PCP refers you to an out-of-network doctor, the health plan will pay the cost.

Health Savings Accounts (HSA) and High Deductible Health Plans (HDHP)

A Health Savings Account is not health insurance. Rather, it is a savings plan that offers an alternate way for consumers to pay for their healthcare. HSAs enable you to pay for current health expenses and save/invest for future qualified medical and retiree health expenses on a tax-free basis.

In order to open an HSA, an individual must be covered by a High Deductible Health Plan (HDHP). Sometimes referred to as a "catastrophic" health insurance plan, an HDHP is an inexpensive health insurance plan that generally does not pay for the first several thousand dollars or more of healthcare expenses (i.e., the "deductible") but will generally cover health expenses after that.

For 2006, in order to qualify to open an HSA, your HDHP minimum deductible was at least $1,050 (self-only coverage) or $2,100 (family coverage). The annual out-of-pocket expense (including deductibles and co-pays) for 2006 could not exceed $5,250 (self-only coverage) or $10,500 (family coverage).