An Overview of Group Health Insurance for Small Businesses
This article was originally published in 2005 and revised in April 2007 with an emphasis on "starter plans" for small businesses that have not previously offered group health insurance options to employees
Group health insurance is a mixed blessing for small businesses. It provides a guarantee of coverage for all of the full-time employees of a business but often at a price that is difficult for smaller firms to justify. The paperwork and documentation requirements are more complex than other types of health insurance yet this coverage remains important to millions of employees of small firms across the country.
Who is Eligible
The full time employees of any small business that reports wage taxes. Full time is usually defined as working 30 or more hours per week. A copy of the employer's most recently filed state quarterly unemployment tax return is usually required as proof of eligibility. This intentionally excludes most husband and wife businesses.
While group health insurance is available to businesses located in all states, this article focuses primarily on coverage that is available online. In those states where coverage is not available online, it is necessary to contact the insurance company directly or use a commercial insurance broker to find coverage.
Group health insurance plans are controlled by state law. Over the past several decades, lawmakers have loaded these plans with required coverage though an explosion of new laws. These improve benefits to the employee but significantly raise the price of the insurance. Items like maternity care, for example, are a significant portion of the cost of group health coverage even for a business composed entirely of single males. The net result of these mandated benefits is that business owners have less ability to custom-fit these types of insurance plans to their business. In response, more businesses are moving toward a Health Reimbursement Arrangement (HRA) plan rather than rely solely on traditional group health insurance. As a practical matter, group insurance is the only way an employee of a small business can get financial help from insurance for maternity costs or the cost of treating pre-existing medical conditions. The cost is averaged into the premium rate for all of the employees of the business, and to a lesser extent, all of the members of the group plan at other companies.
The rates for group insurance are highly regulated by each state's insurance departments. The goal of price controls is to ensure that highest rate charged to the unhealthiest customer with the highest claims cannot be too much more than the lowest rate charged to the best customer with no claims. In many states the rate for businesses with a high risk employee is typically regulated to be 140% of the preferred rate for an otherwise similarly situated business.
The average cost for full coverage is about $280 per month for singles and about $750 per month for family coverage, according to a 2003 survey by the Kaiser Foundation1. Larger firms tend to pay more (for more coverage) and smaller firms tend to pay less (for less coverage). This choice seems to be a matter of budget rather than availability of benefits. There are plans that offer coverage at a lower price by trimming benefits or by being more picky in allowing businesses to enter the plan.
Finding a Provider
There are dozens of providers in each state yet each year fewer of these plans offer coverage though commercial insurance agents. Instead, these plans increasingly rely on "in house" sales representatives who focus primarily on firms with larger numbers of employees. Health insurance companies are increasingly unwilling to pay independent benefits brokers a commission to help small business customers select a health insurance plan. As a result, most small businesses never hear about many of the group health insurance plans that are available to them and many small businesses now have trouble finding available health plans or getting the information they need to make purchase decisions.
Freedom Benefits Association2 offers a service to help small businesses find and compare group health insurance plans. Since this service is not based on commissioned sales, a larger range of health plans are considered.
Basic Health Insurance
There is an easier and less expensive way for a small business to get started with a group health insurance plan that offers minimal benefits for a minimal price. A type of coverage called "Basic Health Insurance" provides exactly what the name implies at a lower cost and without the usual hassles of most group insurance. No professional help is required and employers can easily set this plan up by themselves without any knowledge of group benefit plans. There are no eligibility requirements for businesses located in an approved state. This benefit may be combined with other coverage, perhaps at a later date, to build a more complete coverage.
Basic Health Insurance is available to all businesses in AK, AL, AR, AZ, DC, DE, GA, HI, IA, IL, KY, MD, MI, MO, MS, MT, NC, ND, NE, OK, OR, PA, RI, SC, TN, TX, VA, WI and WY. This plan is pending in CA; check with the benefits adviser for the earliest possible effective date. This plan is available to firms with more than 50 employees in CO, FL, IN, MA and NV. Individuals and one person businesses in AK, AL, AZ, DC, DE, GA, HI, IA, IL, IN, KY, MI, MO, MS, MT, ND, NE, OK, PA, RI, SC, TN, VA, WI and WY can use the "Individual and Family" plan at http://www.BasicHealthInsurance.net.
There is no requirement that the participants be full-time employees. Part-time, temporary and seasonal employees are also eligible. There is no participation requirement - this can be an entirely optional benefit although many employers elect to pay at least half of the cost in order to make the plan easier to manage. Everyone is eligible (except those totally disabled and entirely unable to work). There are no medical questions on the application. Pre-existing medical conditions are covered after six months. Unlike most health plans, the price is actually lower for groups than for individuals. The only requirement to receive group pricing is that all group members are billed together so the business sends a single monthly payment for everyone's coverage.
Obtaining coverage in a limited or supplemental insurance plan is easy online or with a mail-in application. Just download the Group Proposal and Rate Chart, Employer Application, and Member Enrollment Form at http://www.BasicHealthInsurance.net . The brochure explains the coverage in detail. Forms are pre-printed with instructions and mailing address. Since this plan is issued without regard to medical conditions of the applicants, there are no medical questions on the application and all businesses in approved states are accepted. Make the check payable to "Basic Health Insurance". The mailing address is: P.O. Box 333, Newport NJ 08345. Enrollment support is available by e-mail though OnlineAdviser service (firstname.lastname@example.org) . Of course, as the name implies, Basic Health Insurance is only a beginning - not a complete protection solution - but appears to be a step in the right direction.
Alternatives to Group Insurance
An increasing number of small businesses are dropping group health insurance plans in favor of Health Reimbursement Arrangements (HRA) that allow employees to purchase lower cost individual health insurance plans with tax-free funds provided by the employer. The advantage is that the employers' costs are fixed in advance and employees tend to find better values when they shop for their own insurance. Recognizing this trend, federal and state laws are starting to become more accommodating to these consumer-driven health plans as a viable alternative to group health insurance.
1 Prices have more than doubled since the original publication date of this article.
2 Freedom Benefits Association suspended services after the publication of this article but the plans listed are offered online directly from the plan administrators. Small business group health Insurance may be available through local chamber of commerce associations.