Insurance for small businesses: companies in Alaska are lagging behind when it comes to providing health care benefits--which is

Insurance is one of the most important benefits companies offer their employees. But rising health care costs--and premiums--make it more difficult for businesses to provide workers with health care coverage. It's particularly challenging for small businesses with tighter operating budgets.

Case in point: Rapid Action Mailing Service. The bulk-mail facility would like to be able to provide health insurance for its four full-time employees, but simply can't afford it, according to office manager Ann Taylor. Fortunately, all the company's employees have adequate coverage through their spouse's health care plan.

"It's really tough to find affordable insurance if you don't have a large number of employees to get a group discount," Taylor explained.

However, she added, the company compensates in a number of ways. "We have fabulous retirement (benefits) here.... The company matches whatever we put in. And they're really good with the bonuses, vacation, sick leave and holiday pay."

Companies in Alaska are lagging behind when it comes to providing health care benefits--which isn't surprising for a state facing health care costs estimated at almost 40 percent higher than other parts of the country. Just 52 percent of workers in private industry in Alaska and elsewhere in the Pacific had access to employer-sponsored medical care plans in 2004, reports the National Compensation Survey: Employee Benefits in the United States, March 2004. Nationally, 69 percent of private-industry workers had access to employer-sponsored medical care plans, according to the survey by the Bureau of Statistics of the U.S. Department of Labor.

The problem of uninsured individuals provides extra expenses for those who have insurance, as well. In Alaska, families with health insurance pay about $1,500 more annually, the highest in the nation, due to costs of providing medical care to the uninsured.

Many small businesses like Anchorage's Rapid Action Mailing Service recognize the importance of health insurance and want to provide this benefit to their employees, said Matt Tullar of the Alaska Small Business Development Center. But they often feel health insurance is too expensive and, thus, expendable. "A lot of small businesses opt not to provide it," he said.

Tullar doesn't promote any particular type of health care insurance to businesses. But he does strongly recommend complying with the federal requirement for workers' compensation for any company with employees. "We don't police people, but we inform them that there's a $10,000 fine if you don't have workers' compensation insurance," explained Tullar, SBDC rural outreach program director.

Workers' compensation insurance is designed to protect employees if they suffer from job-related injuries or illness. The policy pays the medical bills for the employee who is injured on the job. If there is time off from work due to that injury, the insurance pays disability income to the injured worker. Each state mandates coverage and provides benefits. In most states, private insurance or an employer self-insurance arrangement provides the coverage.

In addition to workers' compensation, employers, the self-employed and their employees must contribute to Social Security, which helps provides benefits for retirees, as well as survivor, dependent and disability benefits. They also have to pay unemployment insurance payments based on their total payroll. And some states--although not Alaska--also require short-term disability benefits.

COMMON TYPES OF HEALTH INSURANCE

Employers generally provide medical coverage through an insured (indemnity or fee-for-service plan) of a pre-paid plan (a health maintenance organization).

Here's how they work: A traditional indemnity plan allows employees to choose their own physician. The employee typically pays for the medical care and then files a claim form with the insurance company for reimbursement.

These plans use deductibles, ranging from $100 to $1,000 a year, and coinsurance. Coinsurance is a percentage of medical expenses the employee pays, with the plan paying the remaining portion. A typical coinsurance amount is 20 percent, with the plan paying 80 percent of approved medical expenses.

Preferred Provider Organizations (PPO) are some of the most popular types of health care plans. According to the Bureau of Labor Statistics, 51 percent of all full-time private industry workers covered by an employer medical care plan were enrolled in a PPO.

A PPO is a network of physicians and/or facilities that contracts with a health insurer or employer to provide health care to members at predetermined discounted rates. Members don't have to use the PPO providers, but doing so can help reduce their premiums and out-of-pocked expenses. Members don't need referrals to see physicians, specialists and other health care providers. And PPO providers usually collect payments directly from insurers.

Health maintenance organizations (HMOs) are another type of commonly used health care plans, with a 40 percent enrollment share of those with employer medical care plans. HMOs provide health care for their members through a network of hospitals and physicians. Benefits typically include everything from preventive and well-baby care to stop-smoking and weight-control programs.

There's no coverage outside the HMO network of hospitals and physicians. So costs are lower, due to limited choice. Employers prepay HMO premiums on a fixed, per-employee basis. Members don't have to apply for reimbursement of charges, but may have small co-payments.

Medical insurance often includes dental plans, which come in two main plan formats: pre-paid plans and preferred dentist organization (PDO) plans. Pre-paid plans give employees access to pre-determined co-payment amounts that are reduced lees for dental treatments received by selecting participating general dentists or specialists. There are no waiting periods, deductibles to meet, claims to file. Also, there's no annual dollar maximum, and pre-existing conditions are generally covered.

With PDO plans, employees can use any dentist of their choosing, but they can receive maximum benefits by using a PDO network provider. Referrals aren't necessary with this option. However, waiting periods, limitations and exclusions can apply. Most plans cover all or part of the costs for cleaning, X rays and oral examinations, fillings, crowns and dentures, root canals, oral surgery and orthodontia.

Disability insurance is another important benefit that companies offer as part of their medical insurance. Short-or long-term disability provides partial income replacement for an employee who cannot work due to illness or accident. These plans are different from workers' compensation because they pay benefits for illness or injury that is not job-related. Disability benefits are designed to replace a portion of employees' monthly income while they're unable to work.

BENEFITS OF PROVIDING HEALTH INSURANCE

Companies aren't legally obligated to provide any insurance beyond what's federally mandated. But it benefits them to offer health insurance to their workers. Health care insurance can relieve employees of the anxiety of health care costs by providing the care they need before illness becomes serious-thus helping companies avoid costly employee sick days. It can also protect employees and their families from the economic hardship brought about by sickness or disability.

For employers, offering health care benefits can be an effective way to attract good people, build morale, retain high-quality employees and keep up with the competition. Offering a group health plan generally costs less than purchasing several individual policies with comparable coverage. Plus, there are tax advantages involved: employer contributions may be deductible and the insurance isn't taxable income to employees.

TRENDS TOWARD SELF-INSURANCE

Rising health care costs are prompting small business owners to take a look at a form of health care coverage previously considered an option only for big business: self-insurance, according to the U.S. Labor Department. With self-insurance, the business predetermines and then pays a portion or all of the medical expenses of employees similar to a traditional health care provider. Funding comes through the establishment of a trust of a simple reserve account. And as with other health care plans, the employee may pay a portion of the cost in premiums.

The self-insurance route is an ideal solution for the Odom Corp. Providing adequate health care coverage for the company's 250 Alaska employees is important, said Alaska Comptroller Tim Wiepking.

The Odom Corp.'s plan is conveniently managed through a third-party administrator. The company pays the bulk of the premium. Coverage is offered for individuals and their families for medical, dental and vision with a long-term disability component.

"It's more cost-efficient for the company.... It also allows them to structure the benefits with a little more flexibility," Wiepking said.

HEALTH SAVINGS ACCOUNTS

Self-insurance is also an emerging trend among employees nationally, as well as in Alaska, according to State Farm Insurance Agent Lisa Sanders. Some workers are moving away from the traditional type of plan with huge premiums and $10 co-pays for a less expensive option: Health Savings Accounts. "The shift is to have people self-insure and pay a higher deductible," Sanders said.

Health Savings Accounts (HSAs), created by the Medicare bill signed by President Bush on December 2003, are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis. They provide pre-tax payment of un-reimbursed medical expenses, while offering tax-advantaged savings similar to an IRA.

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