Well, you finally did it; you started your own business. Now you never have to answer to another boss. You are your own person; in charge of your own fate. The really great part is you now have nobody watching to see what time you come in each morning. No doubt about it; this business-owner stuff is great - or is it? The answer to that question depends on what you were looking for when you struck out on your own, or with a partner or two.

Let’s take a look at the realities of business life. The one reality you know by now is that owning a business isn’t easy. The trips to city hall, or the county seat, to get the permits and licenses you need are proof of that, and that was the easy part. Let’s see, you also had to set up your company, get financing (unless you have a pot of money already), find employees, and complete a host of other tasks before you even opened; so much for the easy life.

Still, at least you are not accountable to anyone, right? You probably already figured out the answer to the question is a big NO! Never mind the host of governmental groups you must satisfy, what about your employees? Even if you have no employees, what about your accountability to yourself and your family? You owe it to yourself and to your family to meet their needs. If nothing else, this means meeting the basic needs of food, clothing, and shelter, but often it means providing other important support, like good healthcare. And if a recent survey by the National Federation of Independent Businesses is any indicator, this is your single biggest worry now that you left your job and the group health policy that came with it. So how do you meet the healthcare needs in your life? Let’s take a look.

Fundamentals

Let’s first make sure you understand the fundamental definitions.

Traditional indemnity or fee-for-service plans are the most expensive plans going in the group insurance area. Basically, these plans typically have a deductible amount, followed by a co-insurance amount (after the deductible, you pay a part of the bill and the insurance company pays a part until you hit the maximum out-of-pocket under the plan). What makes the plans expensive is that you basically can use any healthcare provider without being referred by a primary care doctor (a healthcare gatekeeper of sorts).

Preferred Provider Organization plans offer a high degree of flexibility, if you stay within your assigned network. Typically, these plans are somewhat expensive, but if you choose a physician in the plan’s network (group of healthcare providers with which the insurance company has negotiated lower rates), you may pay a deductible and/or co-insurance, but the amount charged by the healthcare provider is far less than the normal charge. Additionally, you may have co-payments (amount of a provider’s charge that you pay like paying a flat $20 for the office visit) for visits to your provider and/or for prescription medications. You have the flexibility of going outside your assigned network, but you will pay more for the services.

Point-of-service (POS) plans are a hybrid between health maintenance organizations (HMOs) and fee-for-service plans. As you may or may not know, HMOs basically force you to stay in your assigned network and any referrals to a provider other than your primary care provider must be approved by both the HMO and the primary care provider; therefore severely limiting your choices. Although these are the least expensive of the various plan types, the fact that they limit your choice led to the POS plan that will allow you to go out-of-network and still be covered, but at a higher out-of-pocket cost. Many times, certain benefits are excluded if you go outside of your HMO network. And, as with all plans that offer flexibility, POS plans are more expensive than HMOs.

COBRA is an acronym for a law that provides for continuation of coverage if you leave a company to which COBRA applies and if you pay the full premium plus 2% to cover your former employer’s administrative costs of providing you coverage. This is typically quite expensive, applicable only to employers with 20 or more employees and the notification requirements are stringent for both the employee and employer.

Medical Savings Accounts (MSAs) and Healthcare Savings Accounts (HSAs) are vehicles to allow you to accumulate funds pre-tax to pay for medical out-of-pocket costs. Basically, you (or an employer) put money into the account and pull it out tax-free to pay qualified medical expenses. For all practical purposes the MSA was replaced by the HSA effective in 2004. While existing MSAs were not repealed, the HSA has much better options. The HSA has the same features as the MSA, but the amount of deductible required for a policy to meet the needed definition of "high-deductible plan" is lower for the HSA and you can put up to the amount of the policy’s deductible or $2,600 for individuals and $5,150 for family coverage in an HSA each year. The MSA allowable contributions are less. Using an HSA with high-deductible insurance will allow the employer to make contributions to your HSA to help offset the additional deductible you have to pay. Still, from an employer’s viewpoint, the overall effect can be a cost savings over lower deductible plans.

Combining high-deductible with Healthcare Reimbursement Accounts (HRAs) is also becoming widely accepted. Employers use HRAs to cushion the shock of moving from a plan with co-pays to one that is more-or-less a PPO or indemnity plan with a high initial out-of-pocket cost for the employee.

For example, suppose your current plan is too expensive and you need to change. If you go to a high deductible plan of, say, $1,000 deductible and 80/20 co-insurance to a maximum $2,500, instead of an HMO, your employees won’t be happy (if it’s just your family, your spouse won’t be happy). To cushion the impact, you can put, say $1,250 in your employee’s HSA to offset the first $1,250 in out-of-pocket costs, which has the effect of reducing your premium costs since the insured, not the insurance company, pays the first dollars to the provider rather than the insurance company. Using an HRA can effect greater savings by requiring proof of expenditure before you put the money into an employee’s account. Either way, less risk to the insurer equals lower rates, in general. This is also sometimes referred to as consumer driven healthcare since the assumption is the consumer will go less if the consumer has to pay more. By offering consumer driven health plans, employees have the incentive to utilize less services and keep the HSA/HRA money for later instead of going to the doctor for a minor cold.

What’s right for you?

Only you can determine what is right for your company, after receiving sufficient quotes. Here are some things to consider in addition to premium:

1. The overall needs of your group. If you or someone in your group has a serious medical condition, it may be impossible to move to another plan due to cost. At the same time, you have to consider coverage for those with problems, especially if they are key employees.


2. Your ability or your employee’s ability to reduce their take home pay to put money back in an HSA. While the theory of these vehicles is wonderful, if an employee can’t meet the annual deductible, they won’t participate in the plan. Since many plans have minimum participation requirements, this could spell disaster for the group.


3. Plan design is critical as it determines your cost. The more liberal the provisions of a plan, the more it will cost. Sometimes, reducing benefits can produce significant cost savings.


4. What your competitors offer their employees. If there is a shortage of qualified workers in the employment in the pool, skimping on the healthcare benefits could prevent you from obtaining the employees you need.


5. Be careful. There are plans on the marketplace today that sound really inexpensive, but they really aren’t insurance plans. Instead, these basically are network arrangements where you pay your medical bills at a lesser rate, but you still pay the medical bills. This may be appropriate for an individual, but for a group it could be disastrous.


6. If you don’t have employees and your spouse is covered at his or her job, take a look at adding yourself to your spouses plan.


7. One area we haven’t explored is Association Health Plans. Generally, these plans are limited to an association representing your industry or profession. Because of state law, it is nearly impossible to establish such a plan across state borders at the present, but the United States Congress is looking at a federal law to allow such plans to cut across state boundaries. If your association has a nationwide offering, it will most likely not be a real group plan that requires no medical underwriting. Instead, you will probably be setting up a separate plan, but taking advantage of better rates due to buying power.

Conclusion

According to the most recent NFIB survey, affordable healthcare is the small business person’s number 1 concern. The way premiums rise, this isn’t surprising. This means many people are turning to less traditional forms of insurance financing and using the vehicles supplied by the U.S. Government. With the advent of HRAs, into which an employer pays some amount to assist the employee in meeting deductibles and that carry from one year to the next and HSAs that allow you or your employer to accumulate the funds needed to meet deductibles, consumer driven healthcare is now becoming an effective way to limit provider utilization; therefore decreasing the rate of premium growth. If your agent has not suggested these type plans, talk to her or him and find out why. If there is no good reason to stay away from consumer-driven healthcare, consider it carefully. As always, let us know if we can be of assistance.

Have a tremendous February.