Alliant Health Insurance

Business Health Insurance 101

What is business health insurance? It is a group health insurance plan sponsored by an employer for the benefit of the employees. Rather than having to apply for their own health insurance coverage individually, employees can enroll in an employer sponsored group health insurance plan at their worksite.

Why would an employer want to sponsor a group health insurance plan? Some of the benefits to an employer of sponsoring a group health insurance plan are: 1) helps attract and retain employees, 2) helps keep worker compensation claims down, and 3) health insurance premiums paid by an employer are generally a tax deductible expense.

What are the benefits of a group health insurance plan to an employee? Employees benefit by being able to access group health insurance plans in the following ways:

  • 1) it is an easy way for employees and their families to secure health insurance coverage (unlike individual health insurance plans which are medically underwritten, group health insurance in most cases is ‘guarantee-issue‘ regardless of the health of the employee/s and dependents enrolling),
  • 2) employers normally pay a portion (i.e., 50%) of the employee premium which helps keep the health insurance affordable to more people, and
  • 3) group health insurance plans in general offer broader coverage, and won’t exclude certain medical conditions or charge higher rates individually based on the health of those enrolling.

What are the requirements to establish a group health insurance plan? In California, and most other states, it takes a minimum of at least two full-time employees enrolling to set up coverage. The insurance company will require certain documents (i.e., a Quarterly Wage & Tax Report, or other corporate/partnership forms) to ensure the business is valid and the employees in fact work there full-time (20 or 30+ hours per week, depending on regulation).

What are the prices for business health insurance? Premiums or rates for business health insurance are set by insurance companies according to state-specific laws. For small-groups of 2 to 50 employees in California, health insurance companies file a standard rate or Risk Adjustment Factor (RAF). Insurance companies can charge an employer group - or+ 10% off of the standard rate based on the size, and health of the enrolling group. To summarize, California small-group standard rates charged start at 1.0 RAF and can be discounted as low as a .90 RAF or rated up to a maximum rate at 1.10 RAF.

What types of business health insurance plans are there? There are two main types of group health insurance plans sold today: Health Maintenance Organizations (HMO) and Preferred Provider Organizations (PPO).

What is an HMO? Health Maintenance Organizations (HMO) are managed care plans. HMO members typically experience lower out-of-pocket cost, have co-pays for most medical services, and are eligible for annual preventative care. The concept with an HMO is for insured members to select a Primary Care Physician (PCP) and for that doctor to be responsible for the member’s health care and, if necessary, refer the member to a specialist. HMOs have been popular due to their simplicity and economy; generally, there is not as much out-of-pocket cost to the insured and the member rarely receives a bill from providers.

What is a PPO? Preferred Provider Organizations (PPO) are another type of managed care health plan. With a PPO plan, the carrier (health insurance company) has negotiated with medical providers (doctors and hospitals) to give its members discounted rates for services, known as in-network benefits. PPOs will typically provide in-network benefits to insured members at substantial discounts while also allowing them to go out-of-network; however, the cost is typically much higher as those providers are not contracted with the health insurance company.

As overall healthcare costs continue to increase, more individuals are opting for PPOs with higher deductibles to help keep coverage affordable and within their budgets. Within PPO business insurance plans, more groups are enrolling in Health Savings Account (HSA) compatible health plans and Health Reimbursement Arrangements (HRA).

What are HSA compatible health plans? A Health Savings Account (HSA) compatible plan is a high deductible PPO health plan that can be paired with a health savings account. HSA compatible health plans are becoming more popular due to rising medical costs. Here are some details:

  • HSA accounts enjoy tax several advantages: 1) tax deductible contributions (federal and in some states), 2) tax free growth, and 3) tax-free withdrawals for eligible medical expenses
  • HSA compatible health plans tend to be priced more competitively than traditional medical plans
  • HSA compatible plans are considered consumer driven health care, in that individuals and their families will hopefully exhibit more control over using their HSA account resources, as opposed to just having to make a co-pay for medical services

What is a Health Reimbursement Arrangement (HRA)? A Health Reimbursement Arrangement (HRA) is an employer funded arrangement in which the employer will reimburse employees for certain medical expenses they incur during the calendar or plan year. Typically, an HRA is set up with a high deductible health plan (HDHP) which is a PPO, and allows the employer the ability to assist employees with reimbursement of certain medical expenses while the employee is meeting a high deductible. There are advantages for both the employer and employee with an HRA.

  • Employer advantages with an HRA – Setting up an HRA enables the employer to lower the overall health insurance costs, maintaining a large HRA account balance is usually unnecessary , expenses paid with HRA account money are usually 100% deductible, and the employer retains control of the funds.
  • Employee advantages with an HRA – Enables the employee to receive employer assistance through reimbursement for certain medical services, as opposed to having to meet higher out of pocket expenses, lowers the overall medical costs to the employees, and reimbursements to employees are generally tax free.

What does co-pay mean? A co-pay is a set dollar amount an insured member must pay for certain medical services (i.e., a $10 co-pay charged for a generic prescription or a $50 co-pay charged for a routine doctor visit).

What does deductible mean? A deductible is a specific dollar amount that a health insurance company may make a member pay before the company cost shares medical expenses with the member. Typically, PPO health plans have annual deductibles and most HMOs do not, although as medical prices have increased some HMOs have incorporated deductibles for certain services.

What does co-insurance mean? Co-insurance is a usually a percentage of medical expenses a member must pay and cost share with the insurance company. For example, a health plan may state that once the member has met their $1,000 annual deductible they will continue to pay 30% for in-network medical services while the health insurance company pays 70%. Normally the member will pay up to a certain out-of-pocket maximum and then the health insurance company will cover most medical expenses the remainder of that calendar year.

What does out-of-pocket maximum mean? Out-of-pocket maximum is a term used to describe an annual limit an insured member may have to pay for medical services during a set period of time, such as a calendar year. For example, a plan may state it has a $3,000 annual out-of-pocket maximum once the deductible has been met. Certain expenses usually do not count toward out-of-pocket maximums (i.e., prescription drug co-pays).

What does in-network and out-of-network mean? Networks are typical with Preferred Provider Plans (PPO) where the insurance company has negotiated a discount for services provided by medical providers (doctors and hospitals) on behalf of their insured members . When members of an insurance plan use in-network providers, they will receive a substantial discount as opposed to going out-of-network without negotiated discounts.