How Much for Healthcare?

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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"How much?" is a question that often comes to mind when considering healthcare. If you've ever sourced medical insurance coverage and especially if you've opted for a high-deductible plan, then you may have discovered that there's often not a quick, simple answer to this question.

Once I had to make numerous phone calls to get an estimate on physical therapy (about $175 per hour). Another provider gave the upfront cash amount ($200) for a non-urgent procedure to diagnose back pain for a teenage son, who was working hard to train for high school sports; and then reluctantly revealed the full amount ($1,800). I considered my options and then selected my treatment plan: rest (cost = $0).

Navigating the healthcare system takes effort but the time spent can yield a big payoff in terms of cost savings. An affordable plan with good benefits can also positively impact employee morale and retention.

I spoke with Ryan Hanley, a New York State licensed life, health, and property/casualty insurance broker for the Guilderland Agency in Albany, New York.

Ryan started by explaining to me that states regulate certain aspects of healthcare insurance. So, at some point in the decision-making process, business owners should consult with an insurance broker and the Department of Insurance in their respective states regarding insurance-related mandates (if any) for businesses.

Cost of Health Insurance

Health insurance premiums can cost $250-500 per month per employee; spousal coverage will generally run two times the base amount; and family coverage is typically three times the base. In Ryan's experience, some employers will pay the full amount for the employee; others will pay a pre-set dollar amount or percentage each month. But, nearly all in the small business community require employees to pay for spousal, dependent, and family coverage. Exceptions include privately-owned businesses that employ family members.

Factors that influence the monthly premium are the plan type, claims experience, and underwriting risk, which is generally based on employee demographics, worker classifications, and size of the risk pool or number of employees (similar to the determinations for workers' compensation insurance).

Costs that employees typically incur in addition to contributing to monthly premiums are usage-based expenses, such as co-pays for physician and hospital visits; diagnostic and treatment fees up to annual deductibles; and coinsurance or percentages of fees after deductibles are reached. Most plans are designed to limit the insured's annual expenses; there may also be lifetime caps that limit claims payout of insurance companies.

Plan Types

HMO: Health Maintenance Organization plans generally require that insured employees receive care through designated providers with an emphasis on preventive care. Monthly premiums are relatively high (approx. $400-500 per month) and there may be no reimbursement for fees from non-HMO providers. However, usage-based costs are typically lower than other plans.

EPO: Exclusive Provider Organization plans offer reimbursement of qualifying health expenses if insured employees use network providers. Generally, no reimbursement is made if employees use out-of-network providers with exclusions for emergency situations. Premiums tend to be less than HMOs but more than PPOs (approx. $300-350 per month). Shared costs tend to be lower; for example, there may be co-pays but no other out-of-pocket expenses.

PPO: Preferred Provider Organization plans are typically less restrictive than HMOs and EPOs as they may not require referrals from primary care physicians (PCPs) to specialists. These plans offer financial incentives to insured employees for using preferred providers within network and lower reimbursement rates for out-of-network providers. Premiums are generally lower than other types of plans (approx. $250-300 per month) but often have higher usage-based costs.

ABHP: Account-Based Health Plans combine healthcare coverage with tax-favored accounts, such as employer-funded Health Reimbursement Arrangements (HRA), and employee-funded Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA). These plans tend to have lower monthly premiums but have higher deductibles and coinsurance.

Hybrid plans: combine features of EPOs with high co-pays and mid-range deductibles to keep monthly premiums low.

Ryan tells me that his business clients have tended to offer healthcare plans similar to those provided by area employers. Recently, hybrid plans have become popular as they allow businesses to control employer costs while setting a limit on maximum employee spend. Many companies offer vision and dental plans in addition to medical coverage.

Cost Saving Strategies

To save money on healthcare expenses, Ryan recommends:

1. Evaluate healthcare programs on an annual basis and select plans most suitable to your business's and its employees' needs. Start with an informal survey to determine employee satisfaction with the current plan and identify likes/dislikes to consider when choosing a new plan. Sit down with your insurance broker to review options. Arrange for agency representatives to explain the plan design and answer questions in employee group meetings or one-on-one sessions.

2. Take advantage of incentives offered by insurance carriers, such as wellness programs and disease management programs. Your business may earn cash incentives or credits. Over time, your claims may decline so that your underwriting risk and premiums are lowered.

4. Encourage employees to open, fund, and use Health Savings Accounts, which allow employees to reduce taxable income by allowable contributions. Ryan tells me that these accounts are attractive but underutilized. Unlike the FSA in which unused portions are forfeited at the end of each year, funds in HSAs can be rolled over to future years indefinitely.

Do your homework to understand the structure of healthcare policies and then speak with professionals in insurance, payroll, and accounting to implement your plan.