Health insurance benefits, which are a major part of an employee's compensation package, are becoming increasingly more important in a competitive labor market. Full-time employees often expect health insurance coverage, so even those employers who aren't required to provide coverage under the law might want to consider adopting group coverage of some kind.
How do you offer health insurance to your employees when there are so many options on the market? It's a complex area with a lot of options and potential pitfalls. We pulled together these expert insights to help you put together the best health insurance benefits package for your business and employees.
Are you looking for other employee benefits as well? Consider our benefits package guide, which breaks down benefits like health insurance, retirement savings plans, paid time off and more.
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Employer-sponsored health insurance can be tough to manage
The answer to the question of how you offer health insurance to employees is complicated. Health insurance benefits are complex and include varied types of coverage. It can be difficult to know which plans to offer and where to start. What kind of coverage do your employees need? Which type of policy will keep costs down? What kind of health insurance premiums should you consider? Do these plans meet your minimum requirements under the law? Which insurers should you partner with?
It's enough to make anyone's head spin.
The first step to selecting the right coverage options for both your bottom line and your employees' well-being is understanding some of the major types of insurance on the market. From there, offering an employer-sponsored health insurance plan is largely a matter of your business's budget and your group's personal circumstances. Selecting the best fit possible for your employees is key to boosting morale and retention while picking a cost-effective plan is important to keep your expenses manageable. Balancing these two considerations can be tricky.
Types of health insurance plans
When searching for an employee health insurance plan, employers have several options. For starters, employers can opt to offer a fully insured health plan or a self-funded health plan. Fully insured health plans refer to coverage provided by an insurance company on behalf of the employer. These plans are regulated by the states. Self-funded plans grant employers more control over the precise design of the insurance coverage and are governed by the federal Employee Retirement Income Security Act (ERISA) of 1974.
What types of fully insured health plans are on the market? Understanding the answer to this question is the first step in deciding whether this type of plan or a self-funded plan is right for your business and employees. There are several types of fully insured health plans from which employers can choose.
Managed care plans
Managed care plans include Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), Exclusive Provider Organization (EPO) and Point of Service (POS). Each plan varies in costs and services.
HMO health insurance options cover medical services at an in-network provider. The restrictive nature of an HMO plans keep insurance premiums and co-pays down, said Matthew Gardner, an insurance agent and executive sales leader at HealthMarkets.
PPO plans are far more flexible, Gardner said, but come with higher premiums and co-pays. Sometimes employees might be required to pay out-of-network costs up front and then file a claim with the insurance company to get reimbursed.
EPO plans provide health insurance coverage that only extends to providers within the plan's network. Except in an emergency, EPOs only cover the costs of in-network providers, meaning the covered employee would be responsible for the full cost of services incurred from an out-of-network healthcare provider.
Finally, POS plans are a hybrid of HMOs and PPOs. With a POS health insurance plan, employees must first visit a primary care physician and obtain a referral for medical services at an out-of-network provider, which may also be covered depending o the specific details of the plan.
Fee for Service (FFS) plans, or indemnity health insurance, are highly flexible health insurance policies that permit members to visit any healthcare provider of their choosing for whichever medical services they need. The flexibility of these plans comes with high out of pocket costs, Gardner said.
High-deductible health insurance plans
Finally, high-deductible health insurance coverage demands a high annual deductible, which members must meet before becoming eligible for the plan's co-pays. However, due to the high annual deductible, members of a high-deductible plan enjoy much lower monthly premiums than those with other types of health insurance coverage.
These plans often include health savings accounts (HSAs). HSAs are tax-advantaged medical savings account for employees enrolled in a high-deductible health plan. The funds saved in these accounts are not subject to federal income tax and roll over each year if they are not spent, accumulating over time.
Choosing an employer-sponsored health insurance plan
Selecting the right coverage involves a great deal of research on the part of the employer. Balancing cost with the need to find coverage that meets employee needs is key, as well as ensuring that the plans you choose bring your business into compliance with all applicable state and federal laws and regulations, such as the Affordable Care Act, ERISA and the Consolidated Omnibus Reconciliation Act (COBRA) of 1986.
"There are a variety of factors that go into choosing a plan for employees, including how many employees you have, the ages of those employees, their status, and many more," Gardner said, adding that part-time employees, full-time employees and managerial staff will all differ. "When it comes down to choosing a plan, it is very dependent on the budget you have available for health insurance."
In addition to budget, employers have to understand the details of the health insurance coverage they're choosing, including covered medical services, in-network healthcare providers, insurance premiums, co-pays and more.
"The factors an employer should consider when choosing a health plan include the ability to receive information on what is driving the employer's costs, the ability to implement cost-saving strategies and a long term strategy for managing the plans' costs," said Mike Schroeder, president of Roundstone Insurance. "Other factors influencing the health plan choice include hospital and physician services that are available, plans that encourage the employees to engage with the purchase of their health care and plans that promote a healthy lifestyle."
According to Misty Guinn, director of benefits and wellness at Benefitfocus, employers should consider the following:
- Company data from previous open enrollment periods including benefit plan elections, employee demographics, and healthcare claims data
- Gaps in primary coverage that could be filled by supplemental insurance
- The age and lifestyle circumstances of your employees
"[Health insurance selection] depends on an individual's personal situation, so what is comprehensive for one employee may not be comprehensive for another," Guinn said. "For example, if a millennial employee is enrolled in a PPO plan, but they're generally healthy, they may be spending unnecessary dollars on premiums and deductibles when they may be better suited for an HDHP plan and be investing those funds into a Health Savings Account (HSA)."
"However," she added, "someone who selected an HDHP due to the lower premiums may open themselves up for financial risk to meet a high deductible in the event that something happens and medical care is needed. It's key that employers offer a variety of choices and guide employees into their best-fit plans. The most comprehensive plans are ones that offer voluntary solutions, such as accident or critical illness options, to supplement the individual's medical plan and provide a financial safety net."
Employer requirements for offering health insurance benefits
Beyond offering appropriate plans based on the needs of the workforce, employers must keep in mind all applicable laws and regulations. Health insurance is a highly regulated space subject to a wide array of state and federal laws. Its critical employers understand their obligations under all laws and regulations that apply to them, which vary depending on company size and location.
"There are a handful of regulatory requirements you should keep in mind, depending on how many employees you have," Gardner said. "ERISA, COBRA and [the Health Insurance Portability and Accountability Act] (HIPAA) are three employers should be aware of. Additionally, there are state regulatory requirements to be aware of that can impact your business."
The Affordable Care Act
One of the hallmarks of the Affordable Care Act (ACA) is that it requires employers that have 50 or more full-time employees to provide health insurance coverage. The law also established state and federal health insurance exchanges where employers and individuals could purchase health insurance coverage. Employers are also required to adhere to specific reporting options under the ACA.
To find out more about employer requirements, see our ACA essentials guide to help your business stay in compliance.
The federal ERISA governs self-funded retirement and health insurance plans to ensure certain standards of employee protection are met.
"When self-funding their employee health plan, employers must become aware of and adhere to ERISA's rules on protecting employee contributions," Schroeder said.
The primary requirements employers face under ERISA include an obligation to provide employees with details regarding plan features and funding, as well as setting minimum standards for participation, vesting, benefit accrual and funding. The U.S. Department of Labor (DOL) maintains a guide on employer obligations under ERISA for general reference.
The federal COBRA provides workers and their families the opportunity to extend their group health benefits for a limited period in the event they lose their coverage. Generally, COBRA requires employers with 20 or more full-time employees to extend continuation coverage to employees in certain instances where insurance coverage would otherwise end.
Under COBRA, employers and plans are required to provide employees notice when they might be eligible for continuation coverage. To find out more about COBRA, visit the U.S. DOL website.
The federal HIPAA governs the sharing of sensitive health information and protects it from unauthorized release. In the case of employer-employee relationships, HIPAA governs what information a health insurance provider can share with employers about a covered employee. HIPAA protects medical and health plan records from improper disclosure to protect the privacy of employees.
To learn more about HIPAA regulations, visit the U.S. Department of Health and Human Services (HHS) website.
Educating employees about health insurance benefits
With so many types of plans, health insurance can be a complex topic. Employees often don't know what type of coverage to choose or what it entails once they select it. Many employees won't be aware of what their health insurance plan covers at all until they're at the hospital or doctor's office. To help ease the pain of the process, employers should offer education and training opportunities around the healthcare plans they make available.
One of the best ways to educate your employees about their health insurance coverage options is to host an open enrollment meeting, which is led by a health insurance broker or plan provider. These meetings explain plan benefits and details to employee's during open enrollment periods when they will be selecting their coverage options for the next year.
Ongoing education is important as well, Gardner said, because health insurance benefits can be confusing. Education is also important when it comes to keeping employees healthy, which ultimately drives down costs. Providing employees with opportunities for fitness and nutrition education, as well as stress management services, could help employer's health insurance costs.
"Most employees have no idea what their coverage entails until they are at the hospital being treated for something. I think ongoing education is key to ensure your employees the details of their plan and help manage their expectations of the benefits available," Gardner said. "Additionally, I'm finding that many employers are taking it to the next level by educating and encouraging health and wellness in general for their employees. By helping them stay healthy, you can help reduce premiums."
While selecting employee benefits, especially employer-sponsored health insurance, can be incredibly difficult, doing it correctly can have positive impacts on your business. A strong employee benefits package can increase morale, employee retention and recruitment success. Although employee benefits represent significant expenses, employees that are well taken care of are more productive and loyal, which ultimately makes your company stronger. When it comes to employee health insurance, it's critical not to cut corners but choose a plan that marries both cost-effectiveness with comprehensive coverage.