Types of Group Health Plans Available to Small Businesses
Group health insurance protects your employees and their covered family members from unexpected costs associated with an accident or health condition. As an employer, it's also valuable in recruiting and retaining employees.
Multiple studies done by the Society for Human Resource Management (SHRM) show that health insurance is among the most important benefits to employees. In fact, the human resources group found in 2018 that more than half (56%) of adults with employer-sponsored health benefits said approving of their health insurance was a key factor in deciding whether to stay on the job. Nearly half (46%) said health insurance was either the deciding factor or a positive influence is choosing their current job.
The onset of COVID-19 has forced some employers to cut back on staffing while putting a spotlight on health care – motivating some businesses that did not offer benefits to reconsider. If you’re among those looking at coverage for the first time – or shopping around if you already offer coverage – now’s a good time to begin your search. Fourth quarter is traditionally a busy time for insurance companies and employee benefits agents and brokers, because so many employers have January to December coverage.
As you consider your options, here is some valuable information on the types of group health insurance available to small businesses.
An Affordable Care Act (ACA) Primer
The federal health care law became effective 10 years ago, increasing coverage options for individuals as well as small groups. Prior to implementation of the ACA, California’s uninsured rate was 17.2% in 2013, as compared to 7.2% five years later.
The ACA mandates that Applicable Large Employers (ALEs) – those with at least 50 full-time employees, including full-time equivalent employees, on average during the prior year – offer minimum essential health coverage to full-time employees and eligible dependents.
If you are not an ALE, you are not required to offer ACA-compliant health coverage; however, many employers, regardless of group size, do offer employee health benefits for recruitment and retention purposes. (To determine if your business is an ALE subject to the ACA shared responsibility provision, link here to visit the ACA Information Center on the IRS website.)
PPOs, HMOs, and EPOs
There are several different types of health insurance coverage options available in the small business marketplace today. You can choose direct coverage through an insurance company, a public or private exchange like Covered California or CaliforniaChoice, or use an agent to help you shop and compare plans from multiple insurers.
Among the most popular options marketed by insurance carriers are Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) plans. Both have been around for decades and have broad appeal in California. In fact, according to information from the Kaiser Family Foundation State Health Facts, in 2018, HMOs had a 59.2% overall penetration rate in California (vs. 31.6% nationally). The California Health Care Foundation reported an overall PPO penetration rate of 24% in the prior year across all commercial health plans in California, ranging from 15% for large groups, 34% for small groups, and 52% for individual coverage.
Subscriber-members are often attracted to HMOs because of their lower costs and an emphasis on preventive care. What is less appealing for some, however, is an HMO’s limited provider network. An HMO typically limits access to specialists without patients first consulting with a Primary Care Physician (PCP). Using a doctor outside the HMO network also comes with higher out-of-pocket costs.
PPOs, in contrast, may charge members a higher monthly premium, but offer greater flexibility in choosing a doctor or specialist – or when seeking treatment in urgent circumstances.
A somewhat newer coverage option is an Exclusive Provider Organization (EPO) plan, which is a sort of hybrid between an HMO and PPO. An EPO offers a local network of doctors and hospitals from which its members can choose, but may limit benefits when outside the network. EPO coverage may be more affordable than PPO premiums, and EPOs often allow members to self-refer to specialists who are part of the EPO network. Outside the network, there may be no or limited coverage.
Finding Coverage for Your Business and Employees
One way to learn more about your local health plan coverage options is to talk with an employee benefits broker. Consulting a broker does not cost you more – and it can actually help you save on your employees’ coverage. That’s because a local broker is likely to be familiar with the health care providers (including doctors, specialists, and hospitals) that are part of each of the health plans available in your community. If you don’t have a broker, you can search for one here.