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Brown Law Office 972-355-0092
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Employer Law FAQ

What Factors Should Employers Consider in Selecting a Health Plan?

Given the growing cost of medical care and the expense of individual health care coverage, health insurance is one of the most valuable benefits an employer can offer. It is also an attractive benefit for an employer to offer since the cost is tax deductible. Offering health insurance has been shown to increase employee retention, improve recruitment efforts and lead to lower employee absenteeism. However, not all insurance plans are equal. Below are some guidelines for choosing a health plan that will provide quality benefits to your employees and fall within your company’s budget.

What type of health insurance should my company offer?

  • Traditional or conventional coverage: these plans allow covered employees to visit any hospital, doctor or specialist of their choosing to receive treatment covered by the policy. Unlike other managed plans, there is no gate-keeper, so employees can meet with specialists without first receiving a referral from their primary physician. The flexibility of these plans results in high premium costs for employers and high out-of-pocket expense for employees.
  • HMO: Health maintenance organizations allow covered employees to select care from a network of physicians and hospitals. While HMOs are one of the most affordable options, they also offer the least flexibility. Employees choose a primary care doctor who serves two important functions: he or she takes care of the patient's basic health care needs and also serves as a gatekeeper and approves visits to specialists and other physicians. If covered employees wish to see physicians or hospitals outside of the network, they generally must pay all of those expenses out-of-pocket.
  • PPO: Preferred provider organizations work similar to HMOs by providing a network of physicians and hospitals for covered employees to choose from. However, unlike HMOs, PPOs still provide coverage to plan participants who wish to use doctors or hospitals outside of the network. Participants who stay in network pay low deductibles and co-insurance costs while those who go out of network pay higher deductibles and co-insurance payments.
  • POS: Point of service coverage is a hybrid type of insurance incorporating HMO and PPO elements. Plan participants choose a primary care doctor from the network of physicians and hospitals. The primary care physician still has gatekeeper functions in referring patients to other physicians and specialists in-network. However, like PPOs, plan participants can visit out-of-network physicians and hospitals, without a referral, and still while having some of the expense paid by their POS insurance.
  • Customized plans: these plans allow employees to create their own insurance plan by selecting benefit options, levels of coverage and contributions for physician, hospital and pharmacy benefits that best fit their family's health and budgetary needs. Customary plans are becoming very popular with employers who desire to place some of the responsibility of reducing health care expenses on employees.

Should my business use an insurance broker?

Many small businesses purchase group health plans from an insurance broker. Brokers usually offer plans from five to 15 different insurers and can be a great resource for employers seeking to comparison shop among insurers. When choosing a broker, employers should:

  • Look for one with experience dealing with businesses of similar size, type and industry as their own
  • Ask for recommendations from others who have worked personally with a broker
  • Contact the state insurance commission to see if there have been any complaints or investigations concerning a particular broker

Employers who are wary of hiring a broker also can do their own research on insurers by examining their ratings published by one of the following five agencies: A.M. Best, Fitch (previously Duff & Phelps), Moody's, Standard & Poor's and Weiss Research. Employers should consider an insurer's rating over time and across services, since insurers may be strong in some coverage areas and weak in others. Employers should also evaluate an insurer's willingness to pay claims and provide access to specialists (particularly in the case of HMOs).

However, it can be difficult for employers to find adequate information to evaluate a particular insurer's financial health. This is an area where the services of a broker may be the most efficient option.

What should my business look for when evaluating a policy?

Employers should create a list of criteria that they want their health insurance policy to meet. This list can serve as a checklist as employers review different policies, allowing employers an easy way to determine which policy best meets their business and employee needs.

Some of the factors employers should consider are:

  • Costs of the plan to the employer
  • Costs of the plan to employees, including deductibles and co-insurance
  • Coverage of illnesses, diseases and other conditions (some plans will only cover certain conditions or only cover up to a certain maximum. Total coverage for the policy should be at least $1 million)
  • Treatment of pre-existing conditions and long-term illnesses

Employers should steer clear of hospital indemnity policies and dread disease policies. Hospital indemnity policies pay a certain amount for each day the employee is in the hospital, usually at a level insufficient to cover the typical daily cost of a hospital stay. Dread disease policies cover particular illnesses, but tend to be far more expensive than is warranted by the likelihood of developing one of the listed illnesses.

Similarly, checking reimbursement levels for various procedures can reveal whether the policy coverage is far less than the average charge by a hospital or doctor. In this case, your employees undergoing these procedures will be left owing substantial sums. If in doubt, check with a physician to find out whether certain coverage amounts are reasonable.

Employers also should consider if there restrictions that do not fit with their business operations. For example, many HMO policies offer drastically reduced coverage or no coverage at all if an employee has to seek medical or hospital care in another state. If an employer's employees must travel frequently for business, such a restriction would be inappropriate.

Where may my business be able to find a better deal on insurance?

Small business owners looking for more affordable insurance options should contact their state's insurance department. The department may have a list of providers offering small business group health insurance or may have other resources available. Also, small businesses may want to consider the option of joining associations that offer group benefits to their members.

To discuss your specific legal concerns, contact an experienced attorney in your area. A lawyer with experience assisting businesses can provide sound advice and additional resources to ensure you are able to make an informed decision.

Copyright © 2008 FindLaw, a Thomson Reuters business

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent counsel for advice on any legal matter.

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Betty L. Brown
Board Certified by the Texas Board of Legal Specialization
in Labor and Employment Law
Fountain Park
1021 Long Prairie Road, Suite 402
Flower Mound, TX 75022
Phone: 972-355-0092
Fax: 972-899-9635