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How Should an Employer Choose a Health Insurance Plan?

Health insurance matters to most employees and employers too. Group plans offered through employers are the most reliable way for people -- including employers -- to get medical insurance and in many circumstances, their best coverage options. That's why so many employers put tremendous effort into finding and negotiating the best possible health insurance plan. Unfortunately, quality coverage isn't always affordable. Employers often find themselves agonizing over difficult choices.

  1. Availability

    • Before an employer can get down to deciding on which health plan to choose, a benefits representative needs to compile a list of options. Employers don't always have as much selection as they might like. Depending on the number of employees, location of the business and any prior history of health insurance usage, an employer may find only a few insurance companies willing to do business. Many major insurance companies offer limited or no plans for small businesses, and large businesses with a history of high insurance utilization may also find few insurers want to work with them, or that premiums are exceptionally high. Insurance brokers can help employers conduct searches and overcome obstacles.

    Plan Type

    • Managers selecting insurance have to sort through the maze of options that typically include health maintenance organizations (HMOs), preferred provider organizations (PPOs) and high deductible plans. HMOs generally require all care to be coordinated by a primary care physician (PCP), and only care by providers within the network is covered. PPOs allow subscribers to choose any physician -- including specialists -- within an insurance company's network of providers and also reimburses services by some providers outside the network, but at a lower rate. High deductible plans require insured persons to pay out-of-pocket for a set annual maximum of typically $2,000 to $5,000 before any amounts are reimbursed, usually with an 80/20 copay.

    Price

    • Like so many purchasing decisions, affordability is a central factor in selecting an insurance plan. Generally, the higher the reimbursement and the broader the coverage, the higher the premium. Employers face difficult decisions on how much they can contribute to premiums and what the residual amount passed to employees will be. Making coverage affordable to employees often means choosing between a lower coverage plan with premium costs the employer can shoulder, or selecting better coverage requiring a higher employee burden. When a company is large enough, it may be able to offer several plan options from which employees can select depending on whether affordability or high-level coverage is more important to them.

    Annual Review

    • Most health insurance plans have one or two-year terms. Employers can assess management and employee satisfaction with a company health plan each year. If costs, coverage or service aren't to their liking, they can ask an insurance broker to find new options. Insurance companies' prices, plans and terms change regularly. During economic downturns, when companies downsize, health insurance companies often have lower subscriber bases and are hungrier for new clients. Companies can take advantage of better deals to get better coverage for their money or to reduce their overall benefits burdens.

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