In most small businesses, health care is often an employer’s second highest cost after salaries. And with ever-rising costs of coverage, many business owners are faced with a rather disconcerting situation: They can’t find the funds to factor health insurance into their budgets.
But understanding the reasons behind burgeoning health care costs requires a sneak peek at how the industry has evolved.
“Originally, health insurance provided catastrophic coverage only. People paid out of pocket for doctors and other services,” says T.C. Williams, senior account executive for small group sales for Kaiser Permanente. “Over time, there was an increased demand for more services and a higher demand for everything to be covered.” Increased demand translated to increased costs, which ultimately led to the price-shopping movement currently in effect.
Small businesses (companies employing from one to 50 employees) are among the most frequent price-shoppers. “They are looking for ways that they can buy down to contain costs,” says George Stadtlander, vice president, individual group market and chief underwriter for Medical Mutual of Ohio.
The reality is that most new business owners approach their health insurance decision-making like a blank canvas, says Patty Starr, senior director of health insurance and benefits for the Council of Smaller Enterprises. “They don’t know the process. They don’t know where to start or what questions to ask,” she says. “They’re often most concerned about cost. They know what they paid as an employee at their last job, but they don’t know what it costs as an employer plus the employee contribution.”
Susan Porter, owner of Elm Grove Media, had similar concerns about coverage for her one-woman operation, prompting her to contact COSE (of which she is a member) to help walk her through the process. Insurance account executive Lori Phillips explained a variety of plans to Porter, highlighting the different coverage options and benefits. “I told COSE what I was thinking of. They explained the differences in the policies and gave me a quote on what best fit my needs,” Porter says.
Whether you work with an organization such as COSE, a chamber of commerce or tackle the selection process yourself, be prepared to do some solid research before contacting an insurance provider. Ask your colleagues for referrals, find out if your automobile or home insurance provider offers lines of insurance for businesses, and talk to your customers.
“Ask how many of them have
selected that particular health insurance provider and how long they’ve been with them,” Stadtlander advises. “You want to know why someone chose a particular provider. The
success of the health plan is determined by the marketplace and by satisfied customers. Look for stability and affordability.”
In fact, your ultimate bottom-line decision should not lie with the price of the insurance but the health of the employees, says Kaiser’s Williams. Insurers rate the insured by their risk factors, which are determined by actuarial tables. Typically, the younger the insured, the less possibility of claims being filed. Because there’s less of a chance of claims, they are more inclined to want policies with high deductibles. The opposite is true with the older insured who would want a “richer” policy with greater coverage and a lower deductible ensuring adequate coverage should they become ill.
This seems logical, but “adverse selection” often results, says Stadtlander. “In other words, the attempt to arrive at a lower premium will ultimately backfire. This is good for the individual and bad for the insurer.”
The reason? That younger person will age and will eventually need the richer policy. This shifting of policies necessitates ongoing or annual changes in policies. That means more work on the insurance company’s behalf as well as an inconsistent read on the employer’s risk factors. “It’s harder to get a handle on our cost, so the employer will ultimately wind up paying a higher premium,” he says.
One way to combat rising health care premiums is to create a healthier company. To achieve this goal, many employers complement their plans with a wellness program. In addition to fewer insurance claims, the employer benefits significantly from a successful program, including reduced employee absenteeism and increased productivity, employee satisfaction and motivation. The employer’s commitment to employee wellness also improves its reputation as an employee-centric company, which can be an effective recruiting tool.
Although such programs can benefit your employees’ overall health and impact your bottom line, education takes time and effort. “We’ve discovered that it takes six outreaches from Medical Mutual to get the attention of one person, and it takes even more time to get them enrolled in a program,” says Stadtlander. “However, continued participation in these programs is the key to their success.”