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Health Insurance Basics for Micro-business
As a micro-business owner you confront many financial challenges. But none are more daunting - or more important - than finding and keeping affordable, quality health insurance. Saddled with bills for office space, computer equipment, and business supplies, you may be tempted to go without. But before you forgo coverage, consider this: illnesses and injuries trigger half of all personal bankruptcies in the United States. Even a relatively minor accident or illness can cost you thousands of dollars out of your own pocket. Health insurance should be an integral part of your financial protection planning. Shopping for health insurance is often frustrating and confusing, complicated by the fact that health insurers and medical providers have their own terminology. In addition, each state has its own rules and regulations for various products and funding arrangements. However, if you do your homework - the same way you would as if you were buying a brand new home or a car - you should be able to find a satisfactory coverage option.
| Group Health vs. Individual Coverage When it comes to health insurance, it pays to be part of a group. Group premiums are cheaper because insurers spread the risk of claims over a greater number of people. Most group plans are offered as part of a comprehensive employee benefits package, but they can also be purchased through professional associations, trade unions, or churches. Sold directly to you, individual insurance may be a good choice if you’re self-employed and can’t otherwise join an association, or you work for a company that doesn’t offer benefits. |
Group Power
Anyone who belongs to a wholesale shopping club knows you can get a better deal when you buy in bulk. The same is true for health insurance. You’ll pay lower premiums if you’re enrolled in, or sponsoring, a group health plan.
This is why many small employers have joined forces to create group purchasing alliances. The best way to locate a purchasing coalition is to visit your state’s Department of Insurance (DOI) website, or call your DOI directly. The National Association of Insurance Commissioners has a list of state DOI Web sites at www.naic.org. In addition, you can contact your local Small Business Development Center (www.asbdc-us.org), your local Chamber of Commerce or other professional organizations you may belong to for assistance. The folks in these groups can steer you in the right direction.
If these options prove unsuccessful, investigate whether you can form your own group. In some states, self-employed people can form a group with as few as two employees, including yourself, as long as your business meets certain criteria and you pay the employer’s share of social security taxes for your employees. A few states permit a “group of one,” but you will most likely have to submit tax forms to prove you’re a legitimate business.
If you do need to buy individual health insurance, the medical underwriter’s spotlight will be tightly trained on you. Any “pre-existing” condition, such as asthma, diabetes, heart disease ─ even pregnancy ─ can nix your application, boost your premiums, or cause the underwriter to exclude coverage of some conditions altogether. A few states mandate that individual health insurers must offer everyone a policy regardless of their health history. While these states ensure that everyone has a right to purchase health insurance, they don’t guarantee that everyone will have the ability to pay for it. Individual health insurance premiums in states with “guaranteed issue” can be astronomical.
Know Your ABCs
Whether you end up buying an individual health plan for yourself or a small group health plan for you and your employees, you should know there are several plan design variations to choose from. These include indemnity or fee-for-service plans (FFS), preferred provider organizations (PPO), point of service plans (POS), and health maintenance organizations (HMO.) Each plan design has its own pros and cons that you must weigh before making your decision.
Fee-for-service or indemnity plans typically give you the most flexibility. You can see any provider you wish without a referral. However, you will probably pay more out-of-pocket expenses and higher premiums. Managed care plans (PPO, POS, and HMO) operate differently. They use “networks” of contracted physicians, hospitals, and other providers that have agreed to provide comprehensive health care services to the plan’s members. Most managed care plans require you to seek treatment only from their network providers. Others pay for care from any provider, but offer you financial incentives to stay within their network. In exchange for greater patient volume, the network providers agree to charge lower rates. With a managed care plan, you generally trade provider choice for increased affordability.
The chart below explains some of the pros and cons of the most popular health plan designs.
| | Fee for Service (FFS) | Preferred Provider(PPO) | Point of Service (POS) | Health Maintenance Organization (HMO) |
| PROS | Your choice of doctors and hospitals. May visit any specialist without a referral from a primary care physician. | $10 or $20 co-pays to see a network physician. You don’t need a referral to see a specialist, as long as you stay within the plan’s provider network. | Slightly more flexible than HMOs, these plans tend to offer more preventive care and well-being services than PPOs. In some POS plans, you may choose to see a non-network provider and still receive some coverage.n. | Lower co-pays Minimal paperwork. Coverage for many preventive and health improvement programs |
| | Fee for Service (FFS) | Preferred Provider(PPO) | Point of Service (POS) | Health Maintenance Organization (HMO) |
| CONS | Usually a deductible (from $500 to $1500) before the insurer starts paying claims and then doctors are reimbursed about 80 percent of the bill while you pick up the remaining 20 percent. You may have to pay up front from health care services and then submit the bill for reimbursement. Some FFS plans only pay for “reasonable and customary” medical expenses. If your doctor charges more than the average for your area, you will have to pay the difference. | If you visit an out-of-network provider, you may have to pay the entire bill yourself and then submit it for reimbursement. You may have to pay a deductible if you choose to go outside the network, or pay the difference between what network doctors and out-of-network doctors charge. | You must select a Primary Care Physician (PCP). If you do see a non-network provider without permission from your PCP, you’ll end up submitting the bills yourself and receiving only a small reimbursement – if any at all. | You must choose a Primary Care Physician (PCP). HMOs require you to see only network physicians, or they won’t pay. You must get a referral from your PCP to see a specialist. |
An Alternative: Catastrophic Health Insurance
If you’re self-employed, or you work for a micro-business owner that doesn’t offer health insurance, you may be a candidate for a catastrophic health plan. These plans are characterized by high deductibles (anywhere from $500 to $15,000) and low monthly premiums. While they typically cover hospital stays, surgery, intensive care, diagnostic X-rays, and lab tests, they generally do not pay for routine doctor visits, prescription drugs, mental health treatment, or pregnancy. They also have lifetime “caps” between $1 million and $3 million. If you reach that cap, your policy is voided and you are on the hook for any additional expenses. While these plans are not for the risk-adverse, they are an alternative to going uninsured. The catch is that if you want to purchase catastrophic coverage, you must be healthy. Pre-existing health conditions such as diabetes, emphysema, or heart disease (along with many others) will prevent you from buying a plan.