Health spending has steadily increased over the last few years, making health insurance one of the most highly prized employee benefits. Employer-provided health care plays a crucial role in recruitment and retaining top talent. In an era where employees are increasingly open to changing jobs, businesses are reassessing the benefits they offer, including health insurance – however, not all health plans work the same way.
Group health insurance varies in terms of how the insurance is purchased and how it affects the group’s premiums and plan options. If you’re looking for ways to navigate your options, we’ve compiled a few of the most popular plans available.
Group Health Insurance Options
While all health plans have their pros and cons, it’s up to you to decide which makes the most sense for you and your employees’ needs. The following are common types of group health insurance options available for small businesses.
Fully Insured Plans
A fully insured plan is one of the more traditional types of group health insurance. Fully insured plans involve the insurance company taking on the risks involved with health care costs. Your business is then charged an annual premium for the benefits in the insurance policy, which is partially paid for by the employees.
The insurer uses a variety of factors to calculate group health insurance premiums, including:
The insurer uses a variety of factors to calculate group health insurance premiums, including:
- Size and health of the group
- The average age of the group
- The employer's claims history
- Types of occupation
- Level of coverage and add-on benefits
Self-Funded Plans
While the insurance company covers employee health costs in a fully insured plan, self-funding burdens the employer. In a self-funded plan, you’ll pay for employees' health care claims and administrative costs directly rather than paying fixed premiums to an insurance company. This can often lead to more affordable rates and more control over your plan, with the tradeoff of your business accepting the risk of paying for catastrophic claims.
The potential risk is why self-funded plans are more prevalent among larger companies and organizations that can easily absorb fluctuations in health care costs and want more control over their benefit offerings. However, small groups can also take advantage of self-funded plans. Small businesses can opt for a partially self-funded plan if they have a financial buffer or stop-loss insurance. This option allows small businesses to reap some of the benefits of self-funding while limiting risk.
Level-Funded Plans
Level-funded plans strike a balance by merging elements from fully insured and self-funded models. They’re an excellent fit for smaller businesses that might need more time to embrace the risk of a self-funded plan but are prepared to step away from fully insured premiums. They offer cost-saving potential and greater control compared to fully insured plans while still providing financial predictability.
Unlike traditional plans with annual premiums, level-funded options are charged at a monthly payment rate. Insurance carriers will use census information to determine the amount your small group should pay. This rate is based on factors such as claims allowances, fees, and stop-loss coverage premiums. At the end of the year, the carrier will adjust the monthly level based on group performance.
The employer is typically refunded if there is a surplus in the fund due to lower-than-expected claims. This approach allows small businesses to manage costs efficiently and consider a future transition into a self-funded plan.
Health Maintenance Organization (HMO)
An HMO is a group coverage setup where members pay for specific health services through monthly premiums. These plans prioritize cost-effective and comprehensive health care services for their members. With an HMO, you gain access to a designated network of health care providers and facilities, but your coverage is typically limited to services within this network. This focus on in-network care makes HMOs more affordable than other health insurance plans. However, seeing any physicians or facilities not included in your HMO network can result in a group member having to foot the entire bill.
Preferred Provider Organization (PPO)
PPO plans are like HMO plans, except with more flexibility. Like HMOs, PPOs also maintain a network of preferred health care providers, encompassing doctors, hospitals, and specialists. However, what sets PPOs apart is the freedom they grant their members. PPO members can choose to receive care from within the in-network providers or venture outside to out-of-network providers without having to cover the entire cost themselves. Instead, these visits will result in higher co-pays and additional service costs, giving members more freedom than HMO plans.
High-Deductible Health Plan (HDHP) With A Savings Option (HDHP/SO)
An HDHP is based on lower premiums and higher deductibles for group members. This means that members with this type of health care insurance will have to pay more out-of-pocket before the plan pays for its share. The tradeoff, however, is that this route allows monthly premiums to be lower, making it a good group health insurance option for employees who don’t use many medical services.
In addition, you can pair HDHPs with savings options such as a health savings account (HSA). These accounts allow members to make tax-free contributions to an account that can be used to pay for health care costs, ranging from co-pays to primary medical services. The funds in these accounts roll over every year, making them a great retirement savings option, too.
Health reimbursement accounts (HRAs) are another potential savings option that can be tied to an HDHP. These accounts are similar to HSAs, except employers make the contributions instead of employees.
Choosing The Right Type Of Health Insurance For Your Small Business
Finding the right group health insurance plan for your budget can be difficult. Balancing benefits administration and budgets can be overwhelming for anyone without a firm grasp of the health care system.
That’s why many small business owners work with a professional employer organization (PEO) to help weigh their group health insurance options and handle the administrative burden of health care coverage. Whether your organization lacks an HR department or simply needs a resource to make more informed decisions about the management of benefits, GMS is here to help.
GMS changes the approach to increase affordable options and give your employees access to small business health insurance. We give small businesses the buying power of a large corporation. Contact GMS today to speak with one of our experts about how we can help you offer quality healthcare plans that work with your budget.