INSURANCE CHECKLIST

HEALTH INSURANCE for the Small Business

In recognition of the importance of small business to a strong economy, The Travelers Companies has joined with the U.S. Small Business Administration (SBA) to help meet the information needs of existing business owners and aspiring entrepreneurs.

Structuring Your First Benefits Plan
Health insurance is the second most-coveted fringe benefit in America today - behind only paid vacation. Yet only half of employers with fewer than 10 employees offer it, some because of the price tag. Cost, of course, is a major consideration. But in today's environment of managed care plans and increase cost-sharing with employees, it doesn't have to be an overriding issue. Structuring your benefits plan properly -- with an eye on the quality and cost of care -- can help you attract and retain qualified employees.

Where to Start
When considering your first benefits plan, begin by determining the needs of your employees/ You may want to sit down with them to discuss options, making it clear that you may not be able to afford all of what they want and that some costs may have to be shared. Armed with this information, you should contact an independent insurance agent or broker who:

• Can explain the different coverage options available,
• Present you with alternative plans and quotes and
• Sell and service your policy.

Because you will have an ongoing relationship with your agent, consider the agent;s reputation, personal dynamics and responsiveness when making your selection. Your agent will explain to you the major categories of insurance plans, including:

Indemnity
This is a traditional pay-as-you go health insurance plan. The employee pays a set deductible, then a coinsurance percentage (usually 20 percent) of covered expenses. After he or she has paid a certain amount out of pocket, the plan pays 100 percent of the expenses. The employee can use any doctor or hospital, and simply files claims for reimbursement.

Some indemnity plans have "managed care" features, which control costs by monitoring care to make sure it is appropriate and cost-effective. Pre- admission review of hospital stays or medical treatment is one popular and effective managed care feature.

Another method of controlling costs with an indemnity plan is raising the deductible and/or increasing the employee's portion of the coinsurance. The higher the deductible and employee coinsurance, the lower the cost to the employer and employee.

Managed Care
Managed care plans, which are becoming increasingly popular, encourage employees to avail themselves of quality, cost-effective care by offering them financial incentive -- usually higher coinsurance -- to use certain doctors and hospitals. The provides in a managed care network agree to limit their fees in return for a guaranteed number of patients. The provides also handle all claims of quality reviews.

One type of managed care network is a Health Maintenance Organization (HMO), which generally provides 100 percent reimbursement for most services, but provides little or very limited benefits if the employee chooses to see doctors outside of the network for care. In a Preferred Provider Organization (PPO), the employee receives higher reimbursement (often 90 percent) when using a network provider, but benefits are lower (sometimes 70 percent) when the employee receives care from a physician outside the network. However, many plans reimburse emergency care at the 90 percent level, regardless of whether the services is provided by a physician within or outside of the network.

Self Insurance
Some employers self-fund their own plans, but contract with an insurance company for claims administration. This option is generally for larger businesses with more sophisticated insurance administration capabilities and financial resources to absorb the higher risk involved.

Selecting a Plan
Your agent or broker will probably provide you with several different proposals and quotes from insurance companies. Since each quote may provide for different coverages, don't just compare prices. Ask to see the entire proposal from the insurer, including customer service and claims paying capabilities. In reviewing the proposals, ask your agent the following questions:

• Is the insurance carrier reputable and financially strong?
• Will the policy be renewed every six months or annually?
• Is the plan easy to administer? Is there a toll-free 800 number to call to make changes or have questions answered?
• Does the insurer process and pay claims quickly?
• What are the penalties employees should know about? Are there any "hidden" deductibles, such as a separate inpatient hospital deductible?
• Will the insurer underwrite the policy as a group, as individuals or both?
• Does the managed care plan provide enough of a financial incentive to encourage employees to select network providers?

Once you decide on a benefits plan, your insurance company will provide follow-up information for employees that details plan specifics, enrollment periods and claims procedures. Once the program is operational, you will soon become aware of the importance of accurate, responsive service. And, keep the lines of communication open between you and your insurer. Only through continued dialogue can the benefits program be fine-tuned to provide the highest level of service to you and your employees.

In today's benefits environment, providing employee health insurance coverage does not have to be an all-or-nothing proposition. Understanding your employees' needs, researching the options available and selecting a reputable insurer can give you a competitive advantage in recruiting and retaining a skilled workforce.