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Establishing a Health Plan

Take care of your employees--and your business--by providing a health-care plan. Here are your basic options and ways to contain costs.
July 12, 2004

Health insurance is one of the most desirable benefits you can offer employees. There are several basic options for setting up a plan:

Cost Containment
The rising cost of health insurance has forced some small businesses to cut back on the benefits they offer. Carriers that write policies for small businesses tend to charge very high premiums. Often, they demand extensive medical information about each employee. If anyone in the group has a pre-existing condition, they carrier may refuse to write a policy. or, if someone in the company becomes seriously ill, the carrier may cancel the policy the next time it comes up for renewal.

Further complicating matters, some states are mandating certain health-care benefits so that if an employer offers a plan at all, it has to include certain types of coverage. Employers who can't afford to comply often have to cut out insurance altogether. The good news: Many states are trying to ease the burden by passing laws that make it easier for small businesses to get health insurance and that prohibit insurance carriers from discriminating against small firms. (MSAs, described earlier, are in part a response to the problems small businesses face.)

Until more laws are passed, what can a small business do? There are ways to cut costs without cutting into your employees' insurance plan. A growing number of small businesses band together with other entrepreneurs to enjoy the economics of scale and gain more clout with insurance carriers.

Many trade associations offer health insurance plans for small-business owners and their employees at lower rates. The carrier issues a policy to the whole association; your business's coverage cannot be terminated unless the carrier cancels the entire association. Association are able to negotiate lower rates and improved coverage because the carrier does not want to lose such a big chunk of business. This way, even the smallest one-person company can choose from the same menu of health-care options that big companies enjoy.

Associations aren't the only route to take. In some states, business owners or groups have set up health-insurance networks among businesses that have nothing in common but their size and their location. Check with your local chamber of commerce to find out about such programs in your area.

Some people have been ripped off by unscrupulous organizations supposedly peddling "group" insurance plans at prices 20 percent to 40 percent below the going rate. The problem: These plans don't pay all policyholders' claims because they're not backed by sufficient cash reserves. Such plans often have lofty-sounding names that suggest a larger association of small employers.

How to protect yourself from a scam? Here are some tips:

Excerpted from The Small Business Encyclopedia, Start Your Own Business and Entrepreneur magazine ("Needs to Know"). All information is intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an insurance agent.