Health insurance is one of the biggest challenges for small business owners.
It’s a problem for anyone who isn’t in a government or employer sponsored plan, but small businesses have special concerns.
For small businesses, health insurance is complicated by the fact that there may be employees. Do you just get coverage for yourself, or do you extend that coverage to your employees?
The answer is different for different businesses, but there are ways to work through the process to get the best plan to cover your specific needs.
Use an independent insurance broker
Most people think working with an independent insurance agent will mean higher health insurance premiums, but that isn’t true. Insurance brokers are paid a percentage of the premium collected by the insurance company—the premium therefore won’t be any different if you use a broker or not. The broker advantage is really a freebie.
There are two reasons you should work with a broker:
Health insurance is complicated, and unless you’re a health insurance broker yourself, you need one working for you. Not only does an independent agent know various plans, but he also knows the industry. This comes about because the broker works with many different insurance companies, as opposed to working exclusively for one. He can use that knowledge to move you into the right plan for your business.
You’ll change plans–frequently
Just like large employers who change health plans and health insurance companies just about every year, you’ll have to change in order to stay ahead of relentless price increases. Since a broker isn’t tied to one insurance company, he’s free to move you into different plans with different companies as the need arises.
Are you covering just yourself, or do you need a group plan?
If you’re just covering yourself and your family, you’ll be looking for a simple private insurance plan. But if you have employees you will need a group plan, and that’s much more involved.
With an individual plan, the premium will be based on the health of you and your family. But if you opt for group coverage, premiums will be based (and raised) on the health and claim experience of the entire group. If you and your family are in good health, but you have one or more employees who aren’t, you may not want to go with group coverage.
But group plans do have their advantages too.
If your business has group coverage, enrollment will be automatic—the insurance plan accepts members based on their employment with your business. That means pre-existing conditions that might prevent you from getting private insurance will be accepted in a group plan. If you or a member of your family has such a condition and can’t get a private plan, a group plan could be the way around this.
Because of administration costs and the absence of the exclusion for pre-existing conditions, group plans will be more expensive. But sometimes they’re the difference between having health insurance and doing without.
Keeping the costs down
Health insurance is expensive but there are ways to make it less so.
Obviously you start by finding the insurance company that will provide the most comprehensive coverage at the lowest price, but that’s just the beginning.
You can always lower health insurance premiums by raising your co-payments, deductibles and co-insurance provisions (the percentage you pay after your deductible is met). In fact, you can raise these until you reach the point where the plan becomes affordable. Increases, particularly in deductibles and co-insurance can make a substantial difference in monthly premiums.
Plans with deductibles that are more than a few thousand dollars are often labeled “catastrophic” insurance because it only pays for medical catastrophes. These plans don’t cover most ordinary medical expenses, but they do cover the kind that can send someone into financial distress, such as major surgeries or prolonged hospital stays.
If you do raise the deductible much beyond $1,000, consider adding an HSA to offset it.
Health Savings Accounts (HSA)
You may decide that you want to use a health savings account in combination with your health insurance plan. HSA’s can allow you to save money on insurance premiums, because they’re used in conjunction with high deductible plans (catastrophic).
As discussed in the previous section, catastrophic health insurance costs less because the deductible is higher. But you cover the higher deductible with an HSA.
The HSA has several advantages, some of which include:
- It allows you to accumulate money to cover the deductible on your health insurance
- The money you put into an HSA is tax deductible, so the government is effectively paying part of your deductible
- Any money not spent in the account remains in the account and can even earn interest tax-free, turning your HSA into an IRA. Not only is this a good deal for you, but it can be attractive to employees too.
As you can see, health insurance plans for small businesses are complicated by all of the options. If you want to set up a plan, start doing your research early and enlist the support of a health insurance broker when you do.