Related Terms: Employee Benefits
Health insurance is a contractual agreement between an individual or group and an insurance provider through which the insurance provider agrees to pay for some or all of the health care costs incurred by the person or group in exchange for their regular payment of a sum known as a premium. In this way, the insurance company assumes the financial risk of reimbursing health care costs, but it is able to offset that risk by collecting premiums from a large number of people, many of whom will have very low medical expenses. Traditionally, health insurance has been provided as an employee benefit by large companies, so many people have come to think of health insurance as part of an employment compensation package. Self-employed people and small business owners, lacking such coverage, must wade through the many available options to find plans that meet their own health insurance needs.
The seemingly ever-rising cost of health care has become a serious problem for the nation as a whole. In 2006, Business Week Online reported on statistics gathered by the Kaiser Family Foundation. They report that 45 million Americans are uninsured. Slightly more than half of these uninsured Americans (51 percent) work for small companies, defined as having fewer than 100 employees. Complicating this already dramatic situation is the fact that health insurance premiums have risen by 60 percent since 2001 and, according to the Kaiser Family Foundation, are expected to nearly double between 2005 and 2013.
"Premium increases are hitting the smallest of businesses the hardest, most of whom already have a difficult time affording health insurance," said Kaiser Family Foundation President Drew Altman in the Indianapolis Business Journal. "These increases will make it even harder for small businesses to provide health insurance for their employees in the future." Many small business owners found it necessary to consider modifying their health insurance plans for greater affordability, requiring employees to pay more of the monthly premium costs, or dropping their group health care coverage altogether. This last option could pose a problem for small businesses hoping to remain competitive in the job market, however, since 88 percent of employees consider health care benefits to be more of an incentive than any other type of benefit.
A small business' options for health care insurance have increased in recent years and this trend may expand further in coming years. A new bill is working its way through Congress. In early March of 2006, the Senate Committee on Health Education Labor and Pensions passed the Health Insurance Marketplace Modernization and Affordability Act. The act, which has passed the House and awaits full Senate passage, allows for the creation of Small Business Health Plans (SBHPs). These plans are designed to help small businesses realize economies of scale by banding together into ever larger entities that span state lines and industry categories. If this bill becomes law, small businesses may be one step closer to more affordable health care.
Assessing a Company's Needs
The type of coverage a business needs depends upon its work force. For example, a company with a work force consisting primarily of married people with dependent children will need more comprehensive coverage than a company with a mostly unmarried, childless work force. Many plans can be specifically tailored to the needs of a company's work force. For example, firms whose employees work at computers may wish to provide eye care as part of their health insurance plans, while other firms may find that employees would value a fitness program.
Many insurance companies offer computer models that enable small businesses to determine the most economical insurance plan given the previous year's health care expenses. Another option that can reduce premiums is pooling insurance with other small businesses through trade associations or other organizations. Experts note that business owners may find it helpful in comparing different plans to ask the providers for references to other small business clients. Even though health insurance coverage can be expensive for small businesses, plan costs are tax deductible. In addition, providing such benefits can help smaller companies compete with larger ones to attract talented employees and can act to reduce employee turnover. It is important to note that, under the terms of the Consolidated Omnibus Budget Reconciliation Act (COBRA), all businesses that employ more than twenty people and offer a group health insurance plan must give employees the option of continuing coverage at their own expense for a limited period of time when they lose eligibility for company-provided benefits.
There are a variety of health insurance plans available from commercial insurance companies, hospital and medical service plan providers, and health maintenance organizations (HMOs). Coverage can generally be purchased on an individual or group basis. Group plans may be handled through an employer or through various organizations, including professional associations, colleges, labor unions, and health cooperatives. These plans usually have lower premiums than individual plans, cannot be canceled, and do not depend on the physical condition of individuals within the group. Most types of policies cover part of the costs of hospitalization, diseases and illnesses, surgery, and injuries from accidents, but the extent of coverage depends on the particular policy. Most policies do not cover cosmetic surgery, self-inflicted injuries, or preexisting conditions. Supplemental coverage is usually required to pay for eye and dental care, special hazards (such as football, skiing, hunting), rehabilitation services, and travel accidents. Some policies have a deductible that requires the insured to pay a certain amount out-of-pocket before benefits kick in, while others have a co-payment that requires the insured to pay a percentage of the costs after satisfying the deductible.
The most popular types of health insurance plans in the United States are: prepaid plans, which include popular managed care options such as HMOs; and fee-for-service plans, which encompass traditional indemnity insurance. Other possibilities include self-insurance, which basically involves a company or individual covering their own health care costs, and medical savings accounts (MSAs), which allow people to set aside money before taxes to be used for medical expenses. In addition, government-backed health care plans are available to federal employees, members of the military, veterans, the elderly, low-income families, Native Americans, and other societal groups.
