Small Business Health Insurance Overview

U.S. Small Business Administration in cooperation with The Travelers
Successful small business expansions and new formations lead the way in
creating new markets, innovations and jobs that fuel economic growth and

In recognition of the importance of small business to a strong economy, The
Travelers Companies has joined with the U.S. Small Business Administration
(SBA) to help meet the information needs of existing business owners and
aspiring entrepreneurs.

Structuring Your
First Benefits Plan

Health insurance is the second most-coveted fringe benefit in America today
— behind only paid vacation. Yet only half of employers with fewer than 10
employees offer it, some because of the price tag.

Cost, of course, is a major consideration. But in today’s environment of
managed care plans and increase cost-sharing with employees, it doesn’t have
to be an overriding issue.

Structuring your benefits plan properly — with an eye on the quality and
cost of care — can help you attract and retain qualified employees.

Where to Start

When considering your first benefits plan, begin by determining the needs of
your employees/ You may want to sit down with them to discuss options,
making it clear that you may not be able to afford all of what they want and
that some costs may have to be shared.

Armed with this information, you should contact an independent insurance
agent or broker who:

– Can explain the different coverage options available,
– Present you with alternative plans and quotes and
– Sell and service your policy.

Because you will have an ongoing relationship with your agent, consider the
agent;s reputation, personal dynamics and responsiveness when making your

Your agent will explain to you the major categories of insurance plans,


This is a traditional pay-as-you go health insurance plan. The employee pays
a set deductible, then a coinsurance percentage (usually 20 percent) of
covered expenses. After he or she has paid a certain amount out of pocket,
the plan pays 100 percent of the expenses. The employee can use any doctor
or hospital, and simply files claims for reimbursement.

Some indemnity plans have “managed care” features, which control costs by
monitoring care to make sure it is appropriate and cost-effective. Pre-
admission review of hospital stays or medical treatment is one popular and
effective managed care feature.

Another method of controlling costs with an indemnity plan is raising the
deductible and/or increasing the employee’s portion of the coinsurance. The
higher the deductible and employee coinsurance, the lower the cost to the
employer and employee.

Managed Care

Managed care plans, which are becoming increasingly popular, encourage
employees to avail themselves of quality, cost-effective care by offering
them financial incentive — usually higher coinsurance — to use certain
doctors and hospitals. The provides in a managed care network agree to limit
their fees in return for a guaranteed number of patients. The provides also
handle all claims of quality reviews.

One type of managed care network is a Health Maintenance Organization (HMO),
which generally provides 100 percent reimbursement for most services, but
provides little or very limited benefits if the employee chooses to see
doctors outside of the network for care. In a Preferred Provider
Organization (PPO), the employee receives higher reimbursement (often 90
percent) when using a network provider, but benefits are lower (sometimes 70
percent) when the employee receives care from a physician outside the
network. However, many plans reimburse emergency care at the 90 percent
level, regardless of whether the services is provided by a physician within
or outside of the network.

Self Insurance

Some employers self-fund their own plans, but contract with an insurance
company for claims administration. This option is generally for larger
businesses with more sophisticated insurance administration capabilities and
financial resources to absorb the higher risk involved.

Selecting a Plan

Your agent or broker will probably provide you with several different
proposals and quotes from insurance companies. Since each quote may provide
for different coverages, don’t just compare prices. Ask to see the entire
proposal from the insurer, including customer service and claims paying

In reviewing the proposals, ask your agent the following questions:

– Is the insurance carrier reputable and financially strong?

– Will the policy be renewed every six months or annually?

– Is the plan easy to administer? Is there a toll-free 800 number to call
to make changes or have questions answered?

– Does the insurer process and pay claims quickly?

– What are the penalties employees should know about? Are there any
“hidden” deductibles, such as a separate inpatient hospital deductible?

– Will the insurer underwrite the policy as a group, as individuals or

– Does the managed care plan provide enough of a financial incentive to
encourage employees to select network providers?

Once you decide on a benefits plan, your insurance company will provide
follow-up information for employees that details plan specifics, enrollment
periods and claims procedures. Once the program is operational, you will
soon become aware of the importance of accurate, responsive service. And,
keep the lines of communication open between you and your insurer. Only
through continued dialogue can the benefits program be fine-tuned to provide
the highest level of service to you and your employees.

In today’s benefits environment, providing employee health insurance coverage
does not have to be an all-or-nothing proposition. Understanding your
employees’ needs, researching the options available and selecting a reputable
insurer can give you a competitive advantage in recruiting and retaining a
skilled workforce.

How To Get More Information

Information is power! Make it your business to know what business
information is available, where to get it and most importantly, how to use
it. Sources of information include:

U.S. Small Business Administration

– SBA District Offices
– Small Business Development Centers (SBDCs)
– Service Corps of Retired Executives (SCORE)
– Small Business Institutes (SBIs)

Consult your telephone directory under U.S. Government for your local SBA
office or call the Small Business Answer Desk at 1-800-8-ASK-SBA for
information on any of the above resources. Also, you may request a free copy
of the Small Business Directory, a listing of business development
publications and videotapes, from your local SBA office or the Answer Desk.

Other Sources:

– State Economic Development Agencies
– Chambers of Commerce
– Local Colleges
– The Library
– Manufacturers and suppliers of small business technologies and products.

The U.S. Small Business Administration’s participation in this cosponsorship
activity does not constitute and expressed or implied endorsement of any of
the cosponsor’s opinions, products or services. SBA Auth: 88-1190

All SBA programs are available to the public on a nondiscriminatory basis.

About author

SMB Reviews
SMB Reviews 473 posts

SMBReviews is committed to providing small and mid-sized business owners with the information and resources they need to select the best service or product for their company.

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