A Quick Guide To Insurance

Employee Benefits

For many companies, insurance is the foundation of an employee benefits package. But what used to be a fairly simple process has turned into a vast array of confusing choices.

There are three basic types of health plans:

Indemnity plans offer traditional benefits and open access to service providers. These plans tend to be more expensive than the other options.

Preferred Provider Organizations (PPOs) develop a network of doctors, hospitals and other health-care providers, and negotiate discounts to maintain costs.

Health Maintenance Organizations (HMOs) contract with doctors, hospitals and other service providers to deliver care. Patients are typically required to see a plan provider for care.

Some issues to consider when choosing a health plan and provider include:

  • Financial stability. Check out the insurer's financial health by contacting your state insurance department and reviewing the insurer's ranking from rating agencies such as A.M. Best Co. Inc., Duff & Phelps Credit Rating Co., and Standard & Poor's. Your agent can help you with this.
  • Plan features, limitations and exclusions. Find out what the plan does and doesn't cover; then compare that with your employees' needs.
  • Service record. How well does the insurer pay claims and respond to customer service and administrative requests? Check with your state's department of insurance and the Better Business Bureau to see if any complaints are on file. Ask to see the plan's latest member satisfaction survey results. And always ask for and check references.

If your employees are paying all or a portion of their health insurance premiums, allow them to pay with pretax dollars. Michael Hart, president and principal of Hart Associates Inc., an advertising agency in Maumee, Ohio, does just that for his 40 employees. "We were able to help our employees by creating a Section 125 program, which our agent administers for us, that allows our employees to pay their part of their health insurance premiums with pretax dollars," Hart says.

In addition to health insurance, consider other types of coverage as part of your benefits package. Many health insurers also offer dental and vision plans. Group life and disability coverage can help employees plan for their futures and protect their families, usually at rates lower than they can obtain on their own.

One of the most common objections to disability insurance is the cost--it's one of the more expensive types of coverage. That's because rates are based on the amount of risk the insurer is taking, and there is a much higher chance people will use their disability insurance than their life insurance. But group disability coverage is more affordable than individual policies.

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This article was originally published in the October 1998 print edition of Entrepreneur with the headline: A Quick Guide To Insurance.

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