To save money, many small businesses feel forced to drop their company-sponsored health plans. But before taking any drastic measures, dissect your plan. You could be paying for superfluous services and erroneous fees without knowing it. Take a closer look at your health care plan to see where you can save some money.
1. A flood of administrative fees
Instead of absorbing the costs of managing your insurance, providers will typically pass the costs on to you. In 2003, 25 to 27 percent of premiums and 33 to 37 percent of claims are the insurer’s administrative fees, according to the Small Business Association’s Study of the Administrative Costs and Actuarial Values of Small Health Plans. For large businesses, 5 to 11 percent of claims go toward administrative fees.
The SBA’s study says that the administrative costs usually include taxes, commissions, general expenses and profits. Contact your insurance provider and ask for a breakdown of your insurance premiums. It may be worth shopping around for a new provider if administrative fees make up a large percent of your premium.
2. Extremely low deductibles and copays
As a general rule, plans that have low deductibles have higher premiums. According to the KFF study, most workers in Preferred Provider Organizations (PPOs) and Point of Service (POS) plans have a general annual deductible for single coverage that must be met before the provider will pay for any services. Even though only 16 percent of HMOs require a deductible, most HMOs have other forms of cost sharing, such as copays for office visits.
If it seems like you’re paying a lot in premiums, consider comparing your plan to a different plan with slightly higher deductibles. While you don’t want to pass on too much of the expense to your employees, choosing a plan that requires a little more cost sharing may help ease the burden of paying high premiums.
3. Paying multiple insurers
Providing other benefits, such as dental, vision, life insurance and disability insurance, is a good way to further your recruiting and retention success. But even if you get a killer deal from each insurer, contracting with multiple providers may still cost you more than just sticking with one. Buying in bulk from a single company can give you more leverage when it comes to negotiating a better rate.
4. Providing medical insurance to new employees right away
According to the KFF survey, employees contribute 17 percent of the total premium for single coverage and 27 percent for family coverage. The rest of the premium comes out of your pocket. You could be losing a fairly big chunk of change by paying for medical coverage for an employee who only stays with your company for a month or two.A 60 to 90 day probationary period, where the employee works without receiving health insurance, gives you time to determine whether that person is going to stay before you pay for their medical insurance.
5. Flying solo
Data from the U.S. Department of the Treasury shows that small business pay 18 percent more in premiums than big businesses pay for the same coverage. There is more power in numbers. Small businesses can’t obtain the same health plan rates as big businesses because they have fewer people to insure. And having fewer people means higher risk for the insurance provider.
Small businesses with fewer than 50 employees should consider joining a purchasing pool. Purchasing pools, also known as health purchasing alliances, are usually driven by nonprofit organizations that bring small businesses together to buy health insurance as a larger unit. By increasing your numbers, you gain strength and you’re able to negotiate a better rate.