The task of choosing a health insurance policy for you and your employees can be daunting. Small business policies come with widely varying prices and a range of options for coverage that sometimes seem almost impossible to decipher.
By Reed Richardson

Worse, even the cheapest policies can seem absurdly expensive. But many of you no doubt feel that a robust health insurance plan is necessary to attract and retain a talented group of employees. Many of you also probably feel that it's just the right thing to do. You care for the people who work for you and want to be sure they're protected in the event of accident or illness.


Fortunately, with a little work, you should be able to find a plan that protects the health of your workers while not endangering the health of your business. Given the fact that you can take a tax deduction for premiums paid to qualifying group health plans, the right health insurance plan may even seem like a bargain.Well, almost.

Regulatory issues
Government regulations differ from state to state. That said, your company should be eligible for small group coverage if it has at least two full-time owners or workers and it's a legitimate business entity (with a business license or articles of organization).

The percentage of your employees participating in your company health plan also must meet the minimum set by your chosen insurance provider. Some regulations dictate how much of an employee's premium the employer must pay, usually around 25 to 50 percent. You might also choose to extend coverage to employee spouses or dependents, but that's usually not required. Once you check your state's regulations-try the state insurance commissioner's office-give some thought to a few questions that will affect your final choice. Among the crucial issues: Who will be eligible for coverage? Should you include part-time employees? Will there be a waiting period for new hires before they qualify for coverage?

Also consider which of these factors matter most to you and to your business: Monthly premiums. A start-up or a business with modest profits might decide to simply find the cheapest reliable coverage around. A firm that needs to deliver a more robust benefits package to attract and retain employees will consider springing for something more expensive. Either way, you'll want to keep a sharp eye on what you get for your extra dollars-and you should give careful thought to whether those extra benefits are worth the money to your business.

Out-of-pocket costs. This is the amount you and your workers will end up paying for deductibles and co-payments for a range of services, from drugs to doctor's visits to hospital stays. A company with a younger staff might save money by choosing a policy with higher out-of-pocket costs, since workers might not need as much medical care. Older workers or employees with health problems might be hard-pressed to meet out-of-pocket costs on some cheaper policies.

Provider options. Here again, the age of your employees might make the difference. A plan that allows patients broad discretion to choose (or keep) their physicians might appeal to older employees. Younger workers might be more flexible.

Indemnity vs. managed care
Health insurance policies fall into two basic categories: indemnity and managed care. Under indemnity plans, also known as fee-for-service plans, the insurance provider will reimburse for all or part (usually just part) of a visit to a doctor or hospital of the patient's choice. This coverage offers unlimited discretion to the patient, but it is much more expensive
than managed care coverage.

That's why managed care options are more popular. They come in three forms:
HMOs. Health Maintenance Organizations tend to be the least expensive plans around-but there's a catch. Enrollees are limited to the HMO's sometimes limited network of providers, and must rely on a primary care physician to refer them to specialists.

PPOs. Preferred Provider Organizations are the most flexible plans. They contract with a network of doctors and hospitals that work at discounted rates. However, patients who are willing to pay a bit more can go outside of that network. Moreover, patients don't need a primary care physician to refer them to specialists. PPOs tend to be significantly more expensive than HMOs.

POS plans. Point-of-Service plans combine elements of HMOs and PPOs. As with an HMO-and unlike a PPO-enrollees must select a primary care physician who can refer them to a specialist within the plan network. But you also have the freedom to go outside of the network, just as with a PPO.

The devil in the details
Once you've decided upon the type of plan that's right for your business, you'll have to sort through various policies within each category. You may find options that will save you money without compromising on your primary goals. For example, Blue Cross/Blue Shield of Massachusetts offers a policy called HMO Blue Preferences with small deductibles for certain services and slightly higher co-payments. "Maybe you go from a $10 co-payment to a $30 co-payment for an office visit," says BC/BS spokesman Chris Murphy. "That lowers the employer's premiums, but employees still get the quality that Blue Cross/Blue Shield offers."

In most plans, the equation is pretty simple: the higher the deductible, the lower the monthly premium. In other words: You pay more, your employees pay less. If your employees pay more, then you pay less. You need to decide how much of their health care you can reasonably ask your employees to shoulder. Again, this is a tough decision that is likely to involve an array of considerations and each owner is likely to reach a different conclusion depend-ing on the owner's industry, the particular mix of employees involved, and the owner's individual sense of responsibility for his or her people.

Some policies offer riders for supplemental coverage, like eye exams and dental care. They're often inexpensive-around $8 to $12 per month-and you can offer them as an option to individual employees. "The eye exam option might make sense if you have an employee base that's getting a little older," says Sam Gibbs, senior vice president and general manager of eHealthInsurance, an online resource for finding and comparing plans. "Dental riders might make sense for workers with young children."

Some providers offer extra services-which can be especially useful for small firms without human resource departments. For example, provides information about various medical conditions and different treatments, and helps covered employees track their out-of-pocket expenditures and deductibles. Bear in mind that premiums rise. "Find out how quickly a health carrier has increased rates for small business customers," says Cecelia Brock, PhD, a consultant with the Service Corps of Retired Executives (SCORE) and president of her own small business consulting firm in San Diego. That information should be available through your insurance agent or directly from the company.

While you're at it, make sure you buy from a reputable carrier-perhaps a well-known firm such as Aetna, PacifiCare, Blue

Cross/Blue Shield, or Health Net. Check ratings with A.M. Best ( an independent firm that rates carriers' claims-paying ability. And beware of "defined benefit" health care plans. "If you have a heart attack, a defined benefit plan will pay a flat amount-maybe $10,000-and that's it," says Gibbs. "That won't do it."

Don't promise too much
You may wish to provide blue chip coverage to employees and their families-but make sure you can afford to do so. Otherwise, you'll have to reduce coverage, which can disappoint or even infuriate some employees. "When you start taking things away from people, that's when you start having employee relations problems," says Brock. Whatever coverage you choose, keep your staff informed about their coverage. "Communicate, communicate, communicate," says Adam Sturtevant, vice president of employee benefits for TD Banknorth Insurance Group in Portland, Maine. "Explain the value of your firm's health care benefits to employees. That way, they'll understand what you are doing in return for their contributions to the company."

True, it can be painful to write those premium checks. Choose your policy wisely, however, and your dollars will buy you happier, healthier, and more productive workers. What's more, you'll know that you're doing the right thing by the peoplewho make your business a success.

Reed Richardson is managing editor for Business 24/7.