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Small business employers

Purchasing Health Insurance for Your Business—A Four-Step Action Plan

Researching, comparing, budgeting and finally selecting a health insurance plan(s) for your business takes time and thought. It can seem like a daunting task but it can be done. A Four-Step Action Plan will help you get organized, get through the process and keep you on track.

Note: A Four-Step Action Plan can also be a good resource if you choose to hire an insurance agent or broker to help you purchase your health plan.


Step 1: Get Organized and Gather Your Data

  • Organize information about your business.
    • Employer name—legal name of the company
    • Business address—street address only
    • Business start date
    • Payroll records
    • Standard Industry Code that informs the insurer what industry you're in.
    • List of employees you plan to cover—Get their census information from W2 forms. Insurers like to use this information to estimate the health care costs your group is likely to incur. In order to quote you a rate, the insurer will ask that you provide each potential covered employee's name, age, number of dependents and zip code
    • Quarterly salary and wages for the past two quarters
    • Employer identification number or tax identification number
  • Choose a start date at least 60 days from when you begin the research process so you have to time conduct your research, select a health plan and complete all administrative start-up processes.
  • Create a budget.
    • What can your company afford to spend on health insurance?
    • What percentage of your total payroll can support health insurance costs?
    • How much can you spend on each employee per month?

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Step 2. Understand coverage, choice of providers, and cost-sharing options.

  • Decide how important the following are:
    • Choice of health care providers, hospitals and access to medical specialists or special treatments when needed
    • Scope of coverage—Will you be shopping for limited or broad coverage?
  • Sharing the cost of the premiums and health care coverage between you (the employer) and employees
    • How much can you anticipate your employees will be able or willing to contribute to the premium, co-payments, and/or co-insurance?

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Step 3. Research and Evaluate Health Insurers and Health Plan Options

  1. Identify at least three health insurers to contact.
  • Go to Alabama Health Plans to get your research started.
  • Are there purchasing alliances or professional/trade associations in your community that offer a range of health plan products to member employers?
  1. When researching potential health insurers, consider evaluating:
  • Financial stability
  • Ease of administration
  • Overall quality of services and reputation
    • Be sure to look into the insurer's reputation and rating for the quality of care provided under the health plan. You may want to visit the The National Center for Quality Assurance web site, which publishes annual report cards on health plans.
    • Does the insurer make it easy for employees to:
      • Find health care provider information (Are online or hard copy directories easily available?)
      • Resolve claims quickly and efficiently
      • Access customer service representatives to answer questions and resolve member service issues
  1. Once you have identified your health insurers, review at least two or three different health plan options that each insurer offers.
  1. When evaluating health plan options, consider these questions:
  1. What overall health plan benefits would you be receiving for the cost? Consider:
  • Structure of the pharmacy benefit for prescription drug coverage
  • Hospitalization
  • Behavioral or mental health coverage
  • Choice of health care providers, hospitals and medical groups that employees can easily access

You can use the Choosing A Health Plan Checklist to identify many benefits and services that a health plan option can cover.

  1. What are the employer and employee costs?
  • What are the monthly costs for the employer and employee?
  • How much are the participant's co-payments at time of medical service?
  • What is the out-of-pocket maximum that a participant can reach before the health plan waives additional out-of-pocket charges for the participant for the remainder of the year?
  1. Are there any cost-saving strategies to consider?
  1. What is the effective date of coverage?
  • Most employers start employees' health plan coverage on the first day on the job.

E. What is the health plan's cycle?

  • Most health plans operate on a January–December cycle, but good to double-check its 12-month cycle.

F. What are rules of coverage and options?

  • Health plan rules and options can be complex so spend the time to understand and question them with the health insurer.

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Step 4: Select the health insurer and health plan and close the deal

  • Sign the contract before the quote expires.
  • Quotes usually expire in 30 days.
  • Communicate plan choice(s) to employees.
    • Employees will need to know:
      • Health plan type and benefits
      • How to use their health care coverage
      • Enrollment process
      • Employee cost-sharing (what will be their premiums, co-payments, co-insurance, deductibles, and any other out-of-pocket expenses)
      • Option to waive the coverage
      • Distribute and collect enrollment materials from employees.
      • Copy and return all original materials for enrollment before the date requested by the health insurer.

Resource Credits: A Purchasing Health Insurance for Your Business—A Four-Step Action Plan was adapted from The "Action Plan Checklist" which is available online at www.healthcoverageguide.org/, a Web site provided by the California Health Care Foundation that provides unbiased information about health insurance with a focus on the California small business owner with 2 to 50 employees. Additional information was also adapted from "A Guide to Health Insurance Options for Small Businesses in Virginia" which is available online at gunston.gmu.edu/chpre/SmallBusinessGuide/index.html.

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