Workplace Wisdom: Not all health insurance plans are created equal

Health insurance is one of the most sought-after benefits, but not all plans work the same way. There are several different types of group health insurance that differ in terms of how the insurance is purchased and how it affects the group’s premiums and plan options.

While all these plans have certain advantages and disadvantages, it’s up to you to decide which makes the most sense for your needs. Here are some of the common types of group health insurance options available for small businesses.


Fully-insured plans

Of all the types of group health insurance, the fully-insured plan is one of the more traditional options. Fully-insured plans involve the insurance company taking on the risks involved with healthcare costs and charging your business an annual premium for the benefits in the insurance policy, which is partially paid for by the employees. The insurer uses a variety of factors used to calculate group health insurance premiums, including:

  • Size and health of the group
  • Average age of the group
  • The employer’s claims history
  • Types of occupation
  • Level of coverage and add-on benefits


Self-funded plans

While the insurance company covers the expense of employee health costs in a fully-insured plan, self-funding places that burden on the employer. This can often lead to more affordable rates and more control over a plan, with the tradeoff of your business accepting the risk of having to pay for any catastrophic claims.

This path is often seen as an option for large businesses, but small groups can also take advantage of self-funded plans. Small groups can opt for a partially self-funded plan with stop-loss insurance. This option limits your risk so that you can still reap some of the benefits of self-funding without taking on the entire burden in case any catastrophic claims occur.


Level-funded plans

Unlike the more traditional plans with annual premiums, level-funded plans are based on a monthly payment rate. Insurance carriers will use census information to determine the amount that your small group should pay. This rate is based on factors like claims allowances, fees, and stop-loss coverage premiums. Once the year is finished, the carrier will adjust the monthly level based on group performance.


Health Maintenance Organization (HMO)

An HMO is a group coverage setup where group members pay for specific health services through monthly premiums. Through an HMO, you’ll have access to a network of healthcare providers and locations, but services will be limited to those that fall under that network. This arrangement allows HMOs to be more affordable than other types of group plans, although seeing any doctors or facilities not included in your HMO network can result in a group member having to foot the full bill.


Preferred Provider Organization (PPO)

PPO plans are like HMO plans, except with more flexibility. PPOs also feature a network of healthcare providers and facilities, but group members have the option to go to doctors or locations without being completely on the hook for the entire bill. Instead, these visits will result in higher co-pays and additional service costs, giving members some more freedom than HMO plans.


High-deductible health plan with a savings option (HDHP/SO)

An HDHP plan is based around lower premiums and higher deductibles for group members. This means that members on these plans will have to pay more out of pocket before the plan pays for its share. However, this route also allows monthly premiums to be lower, making it a good option for employees who don’t use many medical services.

In addition, HDHP plans can be paired with savings options like a health savings account (HSA). These accounts allow members to contribute untaxed money to an account. This account is then used to pay for health costs, ranging from copays to major medical services. Health reimbursement accounts are another potential savings option. These accounts are like health savings accounts, except that you pay into them instead of your employees.


What’s right for you?

It’s difficult to find the right group health insurance plan for your budget. Balancing benefits administration and budget can be overwhelming for anyone without a strong grasp of the healthcare system. This leads many small business owners to partner with Professional Employer Organizations or Third Party Administrators, while they focus on the core business.

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