An Overview of Commercial Group Life and Health Plans
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Understanding these options will help you select the benefits that are most suitable to your employees.
If you are a small business owner (usually defined as having fewer than 50 employees) you might want to consider offering life or health insurance to your employees. While you are not required by law to do so, these benefits are important to employees and group rates are less expensive than what your employees would pay to purchase individual policies. These benefits, then, can increase employee loyalty to you and your company, as well as reduce turnover.
This article will go over all of the basic options for commercial group life and health insurance plans so that you can know what kind of coverage to provide for your employees.
There are a number of options when it comes to healthcare plans for small employers. This section covers the most common ones.
Fully Insured Health Plan
This is the traditional way employers provide health insurance for their employees. The employer pays the premium to an insurance company. Rates are fixed for one year based on the number of employees, though they can fluctuate from month to month if the number of employees changes. The insurer pays benefits directly to employees (or their healthcare providers) based on claims and the employees are responsible for deductibles or co-payments (to learn more about these, see All the Ways You Pay: Premiums, Deductibles, Co-pays, and Coinsurance).
These plans tend to be expensive, but one significant advantage is that employees can choose any healthcare provider they like.
Preferred Provider and Health Maintenance Organizations (PPOs and HMOs)
These are restrictive variations on the fully insured health plan. In a PPO, discounts in fees charged for healthcare are available as long as the employee uses healthcare providers who are members of the preferred provider network. Employees are allowed to use non-member providers, but will not receive these discounts if they do so.
Likewise, with HMOs employees are required to receive their care from members of the Health Maintenance Organization, with the sole exception of necessary emergency care.
Monthly premiums for PPOs are lower than those for fully insured plans, but higher than those for HMOs.
Flexible Spending Accounts (FSAs)
These accounts (sometimes referred to as arrangements) are not in themselves health plans; rather, they accompany health plans.
Employees can place pre-tax dollars from their salaries into a fund that they can then use to pay for healthcare expenses not covered under the health insurance plan, including deductibles and co-payments.
Self-insured Reimbursement Plan
These are also known as Small Business Healthcare Reimbursement Arrangements (HRAs).
Like FSAs, these plans are, strictly speaking, not health insurance; rather, they are tools that allow an employer to contribute to its employees’ health insurance and medical costs.
Some rules apply: plan rules must apply equally to all employees, the employer must fund the plan in full with no salary reductions or contributions by employees, and proof of medical expenses must be provided by employees or their family members before a reimbursement is issued. As of 2015, the limit on annual reimbursements was $4,950 for employees with no dependents and $10,000 for employees with dependents (these figures change as periodic cost-of-living adjustments are made).
These plans are less expensive than traditional health insurance plans, and the reimbursements offer tax advantages.
Health Saving Accounts (HSAs)
These are medical savings accounts available to participants enrolled in high-deductible health plans. They can be funded by the employee, the employer, or both. Regardless of who contributes to it, the funds are owned by the employee. Funds contributed are tax free and can be used to pay for healthcare expenses.
Premium Only Plans (POPs)
These are salary reductions that allow employees to pay their premiums for group health plans with pre-tax dollars. Employers must have the employees’ agreement to reduce their salaries to pay into these plans.
Dental and Vision
As with health insurance, dental and vision plans are also available as fully insured plans, PPOs, and HMOs. They may be offered separately or packaged with health insurance. Certain dental and vision expenses might also be covered by FSAs, HRAs, and HSAs.
Health Insurance Is Complicated
Health insurance is a complicated subject. Before making any decision about what kind of benefits to provide for your employees, thoroughly discuss options with an agent or broker who has expertise in commercial group health plans. The best approach is to get a set of options from your agent or broker and discuss these with your employees to learn what they believe will work best for them (for advice on selecting an agent, consult these 5 Questions to Ask Before Choosing an Insurance Agent).
Group Life Insurance
Term life insurance is by far the most common type of coverage provided by group life insurance policies. Group policies are almost always less expensive for each individual employee than a comparable individual policy would be, and employees usually do not have to submit to medical examinations prior to receiving covered (to find out more about how your health can affect your insurance, see What Influences Life Insurance Premiums)
But there are some issues. Contracts typically must be renewed every five years, at which point the premiums often increase. The policies also tend not to be portable, meaning that the policy expires if an employee ceases working for you.
Employees are advised to take advantage of anything offered by their employer, but for long-range planning it is highly recommended that they make their own plans for life insurance. With this in mind, putting contributions into a health plan is likely to be a better way for the employer to spend their money.
Consult Your Agent or Broker
Insurance is complicated and the many options available for commercial group life and health insurances make choosing a plan even more difficult. But with an understanding of the basics, along with input from your employees and expert advice from an agent or broker, you will be well on your way to finding the right option for your company (see What Is an Insurance Broker? to learn about different types of insurance professional and what they can do for you).