Medical Insurance
Your highest employee-benefit expense will be medical insurance, and it's also the top choice among employees. Recent surveys have concluded that it plays an important role in employee satisfaction. There are several choices when it comes to choosing a plan, but the two most widely used are a Health Maintenance Organization (HMO) or a Preferred Provider Organization (PPO).
Health Maintenance Organization (HMO)
An HMO is one of the most popular options for employees. There is no deductible and copayments for office visits, prescriptions, emergency room visits, and laboratory tests are low. There is usually no cost for hospital admissions. Participants are assigned to a primary care physician (PCP) who manages the care of the patient, including referrals to specialists. All services are performed by providers in the HMO's approved network.
A network is a group of physicians, hospitals, medical providers, and laboratories that have a contract with the insurance company to provide services for a negotiated fee. In turn, beneficiaries with an HMO option have low copayments. PPO patients have lower out-of-pocket expenses if they choose a network provider over an out-of-network provider.
The benefit to employees is that the out-of-pocket expenses are lowest with this type of plan. Copayments for prescriptions average about $5 – $15, and may be less for generic drugs. Office visits and laboratory work is usually around $10 – $25. These costs are low to the patient because the HMO contracts negotiated rates with area physicians and facilities. The disadvantage is that the employee can never go out of the HMO's network. Well, he can, but he will have to pay full price for it out of his pocket. Another disadvantage is that if the employee wants to see a specialist, he can do so only if he is referred to one by his PCP. The PCP will submit paperwork to the HMO's administrative offices to ask for an approval. If it is approved, the patient can then make an appointment. This results in an additional waiting period to get in for an appointment with the specialist. Also, the number of specialists is limited. If, for example, the employee has a heart condition and wants to see a cardiologist who was recommended to him by a friend, he can't see that doctor if he is not part of the HMO's network.
Preferred Provider Organization (PPO)
A PPO is the other common choice. This type of plan gives the patient the flexibility to save money by seeing an in-network provider, but unlike an HMO, he also has the option to see a doctor who is not in the plan's network. Services from out-of-network physicians and hospitals are paid at a lower level of benefit coverage, resulting in higher out-of-pocket expenses. There is usually a deductible for each plan year in addition to copayments. Premiums for a PPO are higher than an HMO, but to many, the cost is worth the benefit of having a larger selection of physicians to see. The flexibility to self-refer to a specialist is another added bonus. Overall, you can receive quicker medical care with the physician or facility of your choice. There are more doctors in private practice as part of PPO plans than HMOs. Most HMO physicians are part of medical groups and many have a clinical atmosphere.
Know How the Plan Works
If you purchase an HMO or PPO health plan, educate your employees about the importance of following the plan instructions. Employees with an HMO may not see a doctor other than their PCP. Otherwise, benefits will not be paid and the employee will be left with the bill. Changing a PCP can be as easy as a phone call or a click away. Some plans may have a waiting period from the time a new doctor is selected until it goes into effect, such as the first of the month or the next billing cycle. If an employee sees the new doctor before the change goes into effect, the HMO may not pay the bill.
HMO network directories are not always up to date, and this includes directories available on the Internet. When you choose a PCP from the list of providers, call the physician's office and ask if they are part of the HMO network. There is also a chance that the doctor is no longer accepting new patients. Ask about that, too.
Another thing that employees with an HMO need to monitor carefully is the procedures for seeing a specialist or receiving outpatient services. When a PCP processes a referral for a patient to see a specialist or have an outpatient procedure, the insurance company will not pay for the visit if it occurs before the date the service is authorized. Employees should have an authorization number on hand before seeing the specialist or having the procedure done. Otherwise, there is a risk of having an office visit or procedure deemed unauthorized and the insurance company will not pay for it.
Insurance Broker Services
Small- and medium-sized businesses can benefit from the services of an insurance broker to assist with medical, dental, and life-insurance plans. This does not add to your costs for the insurance; the price you would pay for the same policy is the same whether or not you purchase it from a broker. Insurance brokers are paid a 4 percent commission by the medical-insurance companies that they represent. You would not get that 4 percent back by purchasing the policy directly from the insurance company, so there is nothing for you to lose.
An advantage to working with a broker is that they represent several different plans from various companies, giving you a broader selection. A broker will help you design a plan for your company that will meet the needs of the employees while staying within your budget guidelines. For instance, coverage for pre-existing conditions is something that will be very important to your employees. A broker can help you search for a plan with this benefit that you can afford.
The service and support that you'll receive from an insurance broker may be that of a classic benefits administrator. Look for one that will be available to answer questions from employees about the policies and help with enrolling new employees, open enrollment, and COBRA administration.
Part of deciding how much the company can afford to pay for insurance will be reflected by the percentage of the premiums that will be paid by the employee. Very few companies can afford to pay 100 percent of the cost. Most companies pay the majority of the premium and the rest is paid by the employee via payroll deductions. Another option is for the company to pay 100 percent of the coverage for the employee only and for the employee to pay a full or partial amount of the difference for added dependents.
Alternative Medical Insurance Options
Self-funding a medical-insurance plan can keep costs down, but there is a financial risk if an employee has a catastrophic medical expense. You can choose to be partially self-funded by purchasing stop-loss coverage to limit your risk. A benefit to self-funding is that employers are exempt from state regulations and taxations because companies are exempt from the Employee Retirement Income Security Act (ERISA). Employers are not regarded as insurance companies under the law. However, companies with self-funded insurance plans must comply with the Health Insurance Portability and Accountability Act (HIPAA).
The cost of medical insurance is expected to continue to rise. Before choosing a plan that differs from the traditional HMO or PPO plan, educate yourself about the plan thoroughly and talk to people from other companies who have chosen the plan. Ask about the benefits and disadvantages to help you make an informed decision.
Other options that have been increasing in popularity due to their ability to keep costs down are Consumer Driven Health Plans (CDHP), Health Savings Accounts (HSA), Health Reimbursement Accounts (HRA), and High Deductible Health Plans (HDHP).
