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How Do I Buy Health Insurance for My Small Business?

health-insurance-100712-02 Credit: Dreamstime

Perhaps the most terrifying part of starting a new business is wondering how and if you’ll be able to provide health insurance for yourself and your employees.  New health care legislation is expected to make it easier for small businesses to afford health insurance for the short term. However, finding the right insurance company can still be a challenge.

If you decide to purchase small group health insurance, the first thing you should do is check with your state to determine the laws regarding what you are required to offer to your employees. While you are most likely not obligated to offer health insurance if you have fewer than 50 employees, you may find that having a health insurance package allows you to attract higher caliber employees.

Offering health insurance does not mean that you are required to pay for it in its entirety.

Most small businesses share the cost of health insurance with their employees and deduct the employees’ contributions from their paychecks. The employer then pays the monthly health insurance bill on behalf of all employees. Health insurance costs can vary based on the level of coverage and the deductable for a particular plan. You can expect your premium to be as low as $150 a month for an individual and up to several hundred dollars a month per family. Dental and vision insurance, often offered separately, can run only a few dollars a week for an individual and up to $10 to $15 a month for a family.

Find the right plan

Finding the right health care plan can be the most daunting part of acquiring health insurance. There are several ways you can go about getting health insurance.

  • Buy directly from the health insurance company
  • Use an insurance broker who can help you compare plans
  • Use health insurance offered by your payroll management company
  • Join an association that offers health insurance to its members

“The advice we generally give small business owners is to join an industry association that provides a health care plan,” said Jim Hogge, State Director of the Idaho Small Business Development Center.  “This allows the business to join a larger pool of employees and will generally reduce their costs and the risk of insurance rates increasing dramatically due to the illness of an employee.”

Frequently, however, industry associations are most useful for their supplemental insurance offerings, such as dental, vision and accident insurance. And many small business owners complain that they don’t get the service and attention they need from the associations that offer insurance.

Advantages of a broker

Those looking for full health coverage may do better to contact an independent insurance broker who has access to a variety of different health care companies and can help you sort through the various plans.

“An independent insurance broker can represent hundreds of companies,” said Spencer Gerber, President and CEO of Gerber Insurance Group, Prairie Village, Kan., and a mentor for SCORE (Service Corps of Retired Executives), a non-profit outreach of the Small Business Administration that advises small businesses on a variety of issues.

“While it is possible for small businesses to buy insurance directly from an insurance company, it can be difficult to figure out which company and plan are best,” Gerber told BusinessNewsDaily. “Most people need the assistance of a broker to help them sort through the many plans out there.”

Using an insurance broker is free, since they get a commission from insurance companies.

Gerber advised that if businesses want to purchase directly through insurance companies (which costs the same as using a broker) they should visit the web sites of the top insurance companies in their state and request a quote. They are under no obligation to buy it and they can still bring those quotes to an agent if they decide they need further guidance, Gerber said.

Another health insurance option is to purchase through your payroll service company . Much like industry associations, payroll service companies are able to negotiate lower premiums for their members because they are representing a large pool of customers. Even if you are planning on doing your own payroll, it might be worth shopping around to see if the health care savings they offer might justify the cost of using their services.

Regardless of which approach you take, it is important to keep in mind that most insurance companies offer a variety of plans — from comprehensive, which can have low deductibles, but higher premiums, to catastrophic, which has lower premiums, but much higher deductibles. You can usually offer a variety of different plans to your employees and let them choose which is best for them.

Jeanette Mulvey

Jeanette has been writing about business for more than 20 years. She has written about every kind of entrepreneur from hardware store owners to fashion designers. Previously she was a manager of internal communications for Home Depot. Her journalism career began in local newspapers. She has a degree in American Studies from Rutgers University. Follow her on Twitter @jeanettebnd.