Offering your employees health care is either a legal obligation or an option; either way, there are many perks to providing it. A good benefits package can help you attract and retain top talent, maintain company morale and according to the CDC, even increase the productivity of your team. It could even land you on some ‘best places to work’ lists.
So now you’re ready to sift through the options. And, boy, do you have options. With thousands of plans on the market, reading through the paperwork and writing out pros and cons would make anyone dizzy.
Choosing the best health care plans for your team doesn’t necessarily mean going with the most expensive ones; there are many factors you’ll want to take into account including team size, demographics, location, and of course, your budget. There are two key decisions you need to make before selecting your company’s health care plan(s): how you’re going to fund your plan and which type of plan you’re going to choose. Let’s walk through some high level options to help you make the choice that’s best for you and your company.
Step 1: devise a funding strategy
But how exactly do you want to fund your health benefits?
There are three types of funding options: self-funded, level-funded, and fully-insured plans.
- Fully-insured health plans are what people generally think of when they think of health insurance, where the company pays the monthly premium to the insurance carrier, the carrier pays the healthcare claims based on the policy’s coverage and the employees & dependents pay any deductible, co-payments, and co-insurance required.
- Self-insured health plans have companies managing their own health insurance rather than buying the plan from the carrier. It saves the company whatever insurance margin the carrier’s attached to the plan, but if everyone gets sick or injured at the same time, the organization has to have a thick enough wallet to cover the whole team. Traditionally, self-insurance was only done by very large companies (with matching large coffers); now, to get around some of the community rating requirements of the Affordable Care Act, smaller businesses are trying self-insurance, too.
- Level-funded health plans are funded with fixed monthly payments. They’re not subject to state premium taxes, but they are required to have stop-loss insurance, which protects the employer in case they get overwhelmed by claims. While self-insured plans can result in large changes in cash flow if you get months with big claims, level-funded plans help to keep cash flow steady and predictable.
HDHPs, HRAs, HSAs, and FSAs: Where do these fit in?
The plans with the lowest premiums are high-deductible health plans (or HDHP). Sometimes you might see them referred to as “Consumer-driven health plans.” The premiums are kept low because the deductibles are high. With a high deductible health plan (HDHP) employees are self-insured up until the point that they have paid the entire deductible.
As an employer, you can get creative to offset your employees’ high deductibles by setting up an HRA, HSA, or FSA. Here’s how each of these work to protect your employee against the cost of their deductible.
HSA (Health Savings Account)
A Health Savings Account can paid into by both employers and employees. These accounts are nice for employees because they own this money (unlike in an HRA), and they can invest the pre-tax money that is sitting in their HSA. Not all employees qualify for an HSA; you need an HDHP to be eligible for a Health Savings Account. Employees covered by Medicare or who are a dependent on anyone else’s tax return do not qualify for an HSA.
HRA (Health Reimbursement Arrangement)
This is a form of self-funding for employers. Essentially, money is put aside to pay for any employee medical services that you decide to cover. It’s a common strategy to pair a high deductible health plan with an HRA that covers the deductible for employees. This gets company premiums down while setting aside money in case the employee needs it for their deductible payments (hence the comparison to self insurance).
FSA (Flexible Spending Arrangement)
Established by the employer, FSAs are limited to $2,550 per year. Employees don’t pay taxes on the funds inside an FSA, and they can be used to cover deductibles, copays and coinsurance, as well as qualified medical expenses that health insurance doesn’t normally cover. Traditionally, FSAs have had a use-it-or-lose-it policy, but now, businesses can choose to either allow for $500 worth of rollover or give a two-and-a-half-month grace period (not both).
Figuring out the right funding strategy for your company could actually help you save quite a bit on your health insurance. If you’d like a second pair of eyes, Allay’s independent advisors are located across the country and work with business of all shapes and sizes.
Step 2: determine your team’s needs
Ask your team what they want, but set your budget first — you don’t want to promise more than you can deliver.
There’s a big difference between providing healthcare for five people as opposed to 45. The more employees you have, the more priorities are going to diverge. Some factors you might want to consider include:
- Are there many parents or would-be parents?
- What’s the average age of your employees?
- What are these individuals’ priorities in terms of benefits packages?
- How many of your employees work remotely?
- Do your teammates have a lot of standing prescriptions, or want to use a particular hospital?
- How risk-averse (or prone) are your employees?
Some of these questions you already know the answer to: if there’s only one major hospital near you, odds are that’s the one your team will want to use. But it’s important that you ask your team what they want. Work with an advisor to circulate questions to determine what coverage options will be best. It’s important to set your budget before you run this survey; you don’t want to promise more than you can deliver.
Step 3: review the pros and cons
Depending on what matters most to you and your employees, you can choose among HMOs, PPOs, EPOs, and POSs (where offered).
HMO (Health Maintenance Organizations)
HMOs are the most structured kind of health plan. HMOs require that the insured employee use a primary care physician (or PCP) as their point of contact. If the PCP can’t address their issue, they can refer the patient to a specialist, also within their network. HMO plans are frequently the most affordable option, but they have limits: most won’t cover anything outside of their networks unless it is an emergency basis. HMOs usually also have no deductible.
Cost: Depending on the state and the provider, odds are good that an HMO will be the cheapest of your options.
Factors to consider: No out of network coverage, certain states face long referral wait times and difficulty getting appointments with primary care physicians if they have a large network. Open Access HMOs are a variant without mandatory referrals and are worth investigating.
Good for: Larger small businesses (between 100-500 people), businesses in locations with a lot of health care providers.
PPO (Preferred Provider Organizations)
PPOs are more flexible (and expensive) than HMOs because you can go out of network. The insured employee just has to pay a separate Out of Network deductible. There’s no required primary care physician, or required referrals if the insured wants to go see a specialist. With this flexibility comes a higher price tag, and some research is necessary on your part to make sure you’re finding a PPO that allows your team access to as many local providers as possible.
Cost: Highest of the three most popular options.
Factors to consider: Some PPOs require preauthorization of certain treatments. Make sure your teammates know to look out for those potential snags, and that they’ll be responsible for submitting their own claims with all out-of-network care.
Good for: Employees who value freedom, hate red tape.
EPO (Exclusive Provider Organizations)
EPOs are similar to HMOs in that you almost always have to use providers in the insurer’s network. With the same exceptions for emergency care, all out-of-network care comes out of your own pocket. Unlike with an HMO, the employee is not required to select a PCP, or go through one for referrals to specialists. But they will have to do their own leg work as to whether the specialists they want are inside the insurer’s network.
Cost: Many EPOs have no deductibles at all, and certain kinds of EPOs like Cost Sharing EPOs have Major Medical deductibles that only apply to hospital costs, surgery, and sometimes x-rays and lab tests (depending on your carrier).
Factors to consider: EPOs are widespread on the east coast, and only just starting to appear on the west; the strength of this option depends on your location.
Good for: Employees that don’t have any need to go out-of-network and don’t want to have to get referrals to see specialist.
POS (Point of Service)
POS plans are a halfway point between HMOs and PPOs. As with an HMO, employees use a primary care physician to coordinate referrals to specialists, but those specialists can be outside of the network, for an additional fee.
Cost: They usually cost more than HMOs, but less than PPOs, since they don’t have deductibles for in-network services.
Factors to Consider: If it’s likely that employees will go out of network, POSs have the edge on HMOs. If they won’t, there’s little point. POSs are less common than HMOs, PPOs, or EPOs.
Good for: Employees who want a relationship with a primary care physician and the ability to go out of their network.
Now that you’ve read through the details, here’s a quick overview that might help you narrow your choices:
|Flexibility||You’re bound to both the network and your primary care physicians.||The most flexible option, but it can still get expensive if you go out of network.||No primary care physician, but no ability to go outside of network, either.||Can go out of network, but not without your primary care physician.|
|Premiums||In states with strong HMO options, they have the lowest premiums outside of a high-deductible health plan.||Highest premiums.||Very low premiums, often as low as HMO. Sometimes lower, depending on location.||Where available, POS plans have higher premiums than HMOs but lower than PPOs.|
|Control||Primary Care Physicians decide which specialists you’ll be able to access and when. If a doctor’s not in the network, they’ll pay out of pocket to see them.||No primary care physician to serve as gatekeeper, and employees can access any network. Still more expensive to go out of network.||Restricted to the network, but can pursue appointments with the specialists of your choice (within that network) whenever you want.||Primary care physicians are responsible for getting referrals to any doctor as long as you’re willing to pay a fee.|
Where you operate matters
If the bottom line of health insurance is the price of available options, the top line is this: which health care provider in your region is the best?
California’s HMO options are some of the best in the country; 18% of all HMOs in the country are sold there, and 56% of all Californians with health care have an HMO. If there’s a particularly excellent hospital or doctor in your region, some of your employees may prefer to be with the network that the provider belongs to.
When the best option isn’t immediately obvious, you have a few sources at your disposal. The Kaiser Family Foundation is a non-profit organization dedicated to American health care research; their State Health Facts can tell you your state’s average monthly premiums and how competitive the market is in your state, while their Employer Health Benefits Survey provides a comprehensive review of American healthcare as a whole. Insure.com surveys thousands of insured Americans each year, and comes away with a ranking of insurers by customer service and processing times.
Of course, your best option is to seek advice from a strong advisor who can help you navigate the nuances. Finding a good advisor to do the leg work for you will let you focus on doing what you do best: your business.
There’s no way around it: insurance plans operate on a sliding scale. If you want to have more freedom and a lower out of pocket cost when you access care, you’re going to pay a higher premium. If you want to make the scale tip the other way, you have to decide what you’re willing to surrender. An insurance expert will be able to help you select the plans that makes the most sense for your company.
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