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Group health: Know what you're buying

Employee health benefits are complex contracts that can throw you into a state of uncertainty. Are you buying coverage is suitable for your employees? Is it similar to coverage offered by other small businesses?

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Your group health insurance broker should be able to guide you to the right policy choices based your size and industry. For those who'd like a primer, the Employee Benefits Research Institute (EBRI) offers "Fundamentals of Employee Benefits Programs," an online book that describes health, prescription, dental and vision plans, and more, in nontechnical language.

When you're shopping for a group health plan for your small business, you need to know how your choices compare to one another. As with any insurance policy, shopping only by price is an unwise approach.

A health plan's accreditation status will tell you how well it measures up to others in terms of delivering its coverage. (For more, see Choosing a group health plan: accreditation organizations.) But if the insurance company offering the plan is in the midst of a merger, or if it's not doing well financially, service levels could change.

More questions to ask when you're buying a group health plan

How much paperwork? If you're joining an HMO, chances are that the paperwork for claims will be pretty minimal. But traditional indemnity plans may require your employees to file claim forms for reimbursement. How quick is the turnaround time for claims and appeals?

Out-of-pocket expenses: Know the plan's deductibles, co-payments, and maximum annual and lifetime payouts. Ask if there are different out-of-pocket expenses for different kinds of care, such as mental health services.

Member satisfaction: Find out from your state insurance department if any formal complaints have been filed against the plan. Ask the plan itself for the results of its latest member-satisfaction survey.

Grievance and appeals process: Federal law requires that health plans set up a formal process for members to appeal claim denials and file other grievances. These will vary from company to company. Find out whether your plan's appeals process is internal or external and whether there is third-party arbitration for difficult problems. Understand how the appeals process works.

The fine print: Be aware of the circumstances under which a plan will and will not cover some services. Ask specifically about limitations and exclusions on experimental procedures, transplants, infertility treatment, mental health coverage, drug therapies and durable medical equipment.

References: Ask for the names of other companies who use the plan and give them a call. Ask also for the names of one or two similar-sized companies that have left the plan in the past year and call them to find out why.

Source: Employer Quality Partnership

A number of ratings services provide information about the financial health of insurance companies. Most insurance companies will gladly share their ratings with you, especially if they're good. Insure.com also carries financial strength ratings.

Once you've got the goods on the company, make sure you understand the ins and outs of the health plan you're buying. Often when plans are presented, you'll receive a summary of benefits. Behind that summary are details of the coverage. Employers often won't receive those details until you've already purchased the plan, unless you ask for them up front.

For example, two plans may offer prescription coverage with a $10 co-payment. But one plan may pay only for certain drugs — called a closed formulary — while the other will pay for all prescriptions.

On any coverage, a health plan will impose limits, and it's important to find out what those limits are before you buy.

A typical plan

When you're looking at a plan's details, it may be useful to know what other employers buy. According to EBRI, among workers in private industry, 69 percent are offered medical plans, 45 are offered dental plans, 28 percent are offered vision plans and 63 percent are offered prescription drug plans.

Wondering how much of the premiums should be paid by the company? Nationally, says EBRI, 76 of those with single coverage and 88 percent of those with family coverage must make premium contributions. When they do, single-coverage employees pay 18 percent of the premiums and family-coverage employees pay 29 percent.

Deductible levels vary among plan types. For example, for those with a Preferred Provider Organization (PPO) plan where you don't have to choose a primary care physician, the average deductible is $431 for individual coverage and $1,124 for family coverage, according to EBRI. The most typical coinsurance for PPO plans is 80 percent, meaning the plan pays 80 percent of the claim cost and the employee pays 20 percent.

Riding trends

As a small employer, you may need to shift more costs to employees in order to make the plan affordable for your business. One trend with this goal is the so-called "consumer-driven health plan," where employees become direct purchasers of their health care and thus, in theory, will make more prudent choices in their medical care and prescriptions.

These plans often pair high-deductible health plans with a tax-exempt health savings account (HSA) or health reimbursement account (HRA), in which you or your employee deposit money to use for medical expenses. For more, read Health care account comparisons: FSA, HRA and MSA.

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