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How to choose an agent or broker for group health insurance

Employee health insurance is by far the most popular benefit offered by U.S. employers, but buying it — especially for small firms — can be a daunting task.

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Insurance agents and brokers can streamline your health insurance purchase and become allies if you run into insurance problems down the road. Before you put your business in an insurance professional’s hands, it makes sense to arm yourself with knowledge of the health insurance marketplace, and to find an agent or broker who is the right match for your business.

Getting started

The terms "agent" and "broker" are often used interchangeably, but is there a difference? Technically, an agent represents an insurance company, while brokers represent the insured or policyholder. An "independent agent" is unaffiliated with any particular insurer and represents a range of companies.

Do your homework before you set foot inside an insurance agency. First, identify and write down what you and your employees want in a health plan. This list of features becomes your "summary plan description," which you'll ultimately give to agents and brokers as the basis of their price quotes.

Your summary plan description should begin with a few basic features, suggests Amanda Austin, small business expert and senior manager of legislative affairs for the National Federation of Independent Businesses (NFIB). In Austin's experience, many small businesses purchase health plans that provide too many unnecessary benefits and cannot be sustained through a bad financial quarter. Austin recommends starting with a list of basic coverages (such as rehabilitation services) before branching out into potentially costly add-ons such as infertility treatment.

In addition, you'll need to consider what percentage of the premium both the company and the employees will pay. You can also choose to cover a flat amount for each employee. According to small group health insurance experts, most small businesses split the cost 50/50, meaning the employer pays 50 percent of the premium and the employee contributes 50 percent. Of course, the split can vary. Some employers pay the full premium, while others may contribute far less.

"You should have some idea of what you want to cover and whether you can afford it."

"You should have some idea of what you want to cover, and whether you can afford it," advises Robert Rakowski, retired president of a manufacturing company, and now a small-business counselor with the Service Corps of Retired Executives (SCORE), a service of the U.S. Small Business Administration. "You have to make hard choices about what you want to cover, and who pays for the premium, acknowledging that each feature comes with a higher cost. For example, you might want to cover eating disorders, or drug and alcohol rehabilitation, but recognize that those may drive your premium beyond what you can afford."

If you're just starting out and only have a few employees, you might even consider forgoing a full health plan such as an HMO or PPO in favor of a less-expensive, albeit temporary, route. Once the business has expanded and if employees demand it, you can switch to a traditional full-coverage plan.

Understand your options

Armed with your summary plan description, go online to find a ballpark premium. At Web sites that offer group health insurance quotes, you can find a range of prices for the policy you want. If it's not within your budget, consider eliminating some items from your summary plan description.

Remember, though, that online quoting sites don't take into account the health status of your group, so their figures may not reflect your final premium. Still, it helps to know what premium costs you're facing.

Finding the right agent

Often, the same agent or broker handles all of a company's insurance policies, from group health to general liability. If you don't have an agent, or are searching for a new one, it's time to start looking when you have your summary plan description and pricing information in hand. Look for strong service reputations and seek out testimonials from satisfied customers.

To determine which agents or brokers specialize in small-business insurance, contact your local independent agents association or Chamber of Commerce. Try to network with other small businesses in your area and get referrals.

"If you belong to a trade association, or have a network of contacts in a similar industry to yours, ask them what agents have helped them the most," says Madelyn Flannagan, vice president of research and development at the Independent Insurance Agents & Brokers of America (IIABA). "This can be your best source for finding the right agent that fits your needs."

How will you know when you've found the right agency? Not only should you look for an affordable plan to fit your needs, but you should also make sure the quote comes from a reputable, financially stable insurance company —one with at least an "A" rating from A.M. Best, Standard & Poor's or other rating service. If the lowest premium quoted to you comes from an insurer with a shaky financial record, consider going with a stronger company, even if the premiums are higher.

After finding a potential agent, don't be shy about asking for references and following up on them. Ask present and past agency customers about their experiences: Did the agent respond promptly to inquiries? Did he or she give you more than one quote, from reputable companies? If there were claims problems, did the agency help solve them? Your state insurane department tracks complaints against licensed agents and brokers.

Alternately, you can shop around based on pure price comparisons. "Go to a broker and present your summary plan description. Ask what they recommend," Rakowski says. "They'll give you quotes from different companies, plans available and limitations of coverage. Then go to the next broker on the list. Give them that information and ask if there's anything you might have missed. After you've been to four or five, you'll know where the best prices are."

Watch out for sticker shock

Once you're ready to apply for group coverage, you'll need to complete a full, detailed application. You'll need to know exactly how many employees will participate, and whether their spouses and families will require coverage. If your group is small, 25 or fewer employees, each employee may need to fill out a detailed health questionnaire with 10 to 20 questions regarding his or her health history. Each family member who will be covered needs to complete the questionnaire as well.

If your group has more than 25 employees, you might receive a shorter application: Spreading the health risks among more people means that a less detailed &mdas; or no — individual health history is required. Some insurers require only a five-question application of each employee, while others rely upon the employer's assessment of the group's health. You'll need to provide the insurer with your wage and tax reports, too.

In some states that have passed small business group health insurance laws, businesses with 50 or fewer employees cannot be turned down for a group health plan.

"Ask your agent about state-specific mandates regarding medical underwriting and eligibility," suggests Austin. "The more you know, the easier the application process will be."

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