Nobody Wants Insurance - Until They Need It

There's a funny thing about insurance. Those who can't get it, desperately want it. Those who qualify for insurance often don't see the real value in it.A young farm employee didn't join the group health plan his employer offered because he didn't want the $25/month cost taken out of his paycheck. When he married, he passed again. "Too much money," he said.Now, his wife has developed diabetes and

There's a funny thing about insurance. Those who can't get it, desperately want it. Those who qualify for insurance often don't see the real value in it.

A young farm employee didn't join the group health plan his employer offered because he didn't want the $25/month cost taken out of his paycheck. When he married, he passed again. "Too much money," he said.

Now, his wife has developed diabetes and he can't get her on the plan without a pre-existing condition rider that will exclude any costs related to her diabetes.

Now he desperately wants the full coverage he passed up. But he can't get it.

Health insurance is probably the number one benefit you can provide to employees. And hopefully, they will take it. If you already have a plan in place, it may be a good time to review it. If you don't have a plan, you may want to consider adding one.

Shopping For Group Plan There's a process any employer ought to follow when considering group health insurance for employees, says Leigh Leyen, account executive for Wellmark Blue Cross/Blue Shield of Iowa. She works with Iowa Farm Bureau agents who market small group products in Iowa.

1. The Deductible Amount

"The first thing we look at with the employer is whether they tend more toward being a risk taker or if they are more risk adverse," says Leyen. "If they are willing to shoulder a bigger amount of the risk, they may want a higher deductible policy."

With Leyen's company, the deductible amount of medical expenses that the employee pays before the insurance company kicks in any money will range from $100 on a single policy to as much as $7,500 on a family policy. There are various choices within that range.

2. Co-Insurance

"Beyond the initial deductible, the employee may have a co-insurance amount," Leyen explains. "On a $1,000 deductible, for example, the insured will pay the first $1,000. Then there might be a co-insurance where the employee pays 20% of the next $5,000 of covered medical expenses."

In that example, the insured employee would pay $1,000 under the co-insurance for a total of $2,000. That $2,000 is the maximum out-of-pocket that the insured will pay annually for health care.

Beyond that, the insurance company pays all the eligible medical expenses.

"Back in the 1970s, group health insurance was commonly full coverage with the insurance company paying all the costs," says Leyen. "Because of the rise in health care costs, that is no longer the case."

3. Benefits To Include

In addition to coverage that will pay for doctor and hospital expenses, there are other benefits that can be included. These, of course, come at additional cost.

Drug plans will pay some of the cost of prescriptions. Cost of drugs might be part of the deductible. Once the deductible has been met and paid by the insured for the year, the insurance company will pay the cost of additional prescriptions.

Or, the plan you choose might have what is known as a drug card. The patient pays the prescription deductible - first $10 or 25% of the cost of that prescription, whichever is more, for example. Or, maybe it's $5 rather than $10.

Dental and eye care coverage are other options that can be included in group health care plans.

4. Choices Of Care Providers

How much do you want to restrict your employees and yourself if you are included in the plan to what doctors and hospitals they can use? It will affect your cost.

"The tightest control is with Health Maintenance Organizations (HMOs)," says Leyen. "The insured has to use a certain physician. If he or she doesn't, benefits may not be paid by the insurance company."

A less restrictive plan is called the Preferred Provider Option (PPO).

"A contractual agreement is made with a multitude of physicians and hospitals," Leyen explains. "Every insured receives a list and can choose from that list." There's an advantage to the insured to go by the list. Those physicians and hospitals have agreed to rates for different procedures and that is the maximum the insurance company will pay. If an insured goes to one that's not on the list, the insured will have to pay the difference if the cost is higher.

5. Your Contribution

Another decision is how much money you are going to provide toward the cost of your employees' insurance. There are minimums. You can't just pay a buck a month and call it a group plan. But there is flexibility.

"Most employers choose to contribute a percentage of the single premium and the employee pays the rest of the single premium and all of the family premium," says Leyen. "The percentage may be up to 100%. But there's a reason for most employers to go less than 100%, even if it's 99%."

An example will make this easier to understand. So, for example purposes only, suppose the single premium rate is $100.

"If you choose to provide 100% of the premium for a single person, you have to cover every employee (100%) or you may have potential discrimination," Leyen explains. "If you have 20 employees and your single premium is $100, you are going to spend $2,000 a month.

"But if you contribute less than 100%, you may be able to 'carve out' some employees," she adds.

Employees in Iowa small groups can be carved out for three reasons:

(1) They have had individual insurance in force for more than a year and want to stay on it.

(2) They are on Medicare or Medicaid.

(3) The have "health elsewhere" which means they have credible coverage such as being covered by a spouse's policy.

Leyen illustrates that buying a medical insurance product has some characteristics that are similar to buying a car. You have a lot of different "makes" and "models" and plenty of "options" to consider. That allows you to find one that fits your needs.

Basic Requirements Group plans in Iowa can actually be as few as two people - two brothers, a father and a son or daughter or even a husband and wife, says Leyen. The key ingredient is that there has to be an employer-employee relationship. That means you have to have a payroll and file W-2 forms for income taxes.

Laws regulate that insurance carriers can establish a minimum number of "eligible" employees participate in a group plan. Those are often aimed at not favoring the employer over the employees. It's not hard for most employers to meet that requirement. If an employee doesn't participate because he/she is covered under a spouse's plan, for example, that employee is not counted as an "eligible" employee.

What Will It Cost? Your insurance agent can't pull out a rate book and tell you five minutes later what a group health plan will cost. But Leyen gives an overview of how it's done.

You provide information about your employees that will include age and illnesses, from questions asked by the company.

"We look at factors such as age, who is being covered, how many singles and how many families are in the group, where they are located and benefit factors such as low or high deductibles," Leyen says.

Some insurance companies don't set one rate for all employees in the group. Instead, they rate by age. Just as an example, a 19-year-old, single person might have a rate of $60. The comparable rate for a 64-year-old might be $120.

Be sure to check the laws and regulations in your state about group insurance. There could be some differences that will affect your business.

One thing you and the insurance company have in common is that you both want your premium to be less. A question to ask when you're choosing a company is, "What do you do to help keep the costs down?"

A smart place to start is to help keep the employees and their family members healthy. Not smoking, healthy eating and exercise seem to be the big three.

Insurance companies often will provide literature you can give employees or even conduct educational programs for your employees and their families to promote healthier living.

Nurse-Line Help Leigh Leyen describes a program that helps keep the number of expensive emergency room visits down. Insureds can call a nurse anytime, day or night. When it fits, the nurse gives first aid suggestions to try instead of simply racing to the nearest emergency room.

A true example Leyen gives: a child was running a high fever in the middle of the night during an Iowa snowstorm. The parents were ready to rush her to the emergency room when the mother remembered the magnet on the refrigerator with the number for nurse line listed to call first.

The nurse told them to try some first aid to bring the fever down and to call back if that didn't work.

It did work and a visit the next day to their local doctor confirmed that it was a relatively minor infection that was taken care of at a lower cost compared to the high cost of an emergency room visit.

If somebody is experiencing severe chest pains, the advice will likely be call for emergency help and get to the hospital. But in many cases, first aid can avoid the trip.

Higher deductibles, co-insurance and using doctors and hospitals who contract with the insurance company that were mentioned earlier are other ways to keep costs down.

To an employer, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) may or may not be good news. It makes it safer for an employee to change jobs and not lose health insurance benefits.

That increases the risk of you losing a good employee to somebody else. But it also means you could stand a better chance of hiring a high caliber employee from some other company - if you both have a group health insurance plan.

Before the law took effect on July 1, 1997, an employee who had a "pre-existing condition" would have been reluctant to change jobs because he/she might not have been allowed to join the new company's plan, explains Garry Leavell, Director of Corporate Compliance with Wellmark Blue Cross/Blue Shield of Iowa. Or, his pre-existing condition might have been excluded in the coverage. The exclusion might have lasted for a year or more - or forever.

HIPAA changed that. Now, if an employee has been covered by a group plan for at least 12 months and goes to work for a company that has group health insurance, he has to be covered by the new company's plan. Pre-existing conditions can't be excluded.

"The rationale is to assure people who change jobs or lose their job that they can secure health insurance coverage on a favorable basis and won't be penalized for changing jobs," says Leavell.

The new law doesn't help people get insurance coverage if they haven't had coverage. It doesn't necessarily make their insurance more affordable. But it does keep employees from feeling locked in a job if they or a member of their family has a health problem.

At Oasis Farms, employees pay their own health insurance premiums. But they do it with "before-tax" dollars.

"We started a cafeteria plan about 5 or 6 years ago," says Jane Feagans, office manager. "We had been paying for the health insurance before then so we gave all the employees a raise equal to what we had been paying for their insurance."

Oasis Farms is an 1,800-sow operation at Oakford, IL, owned and operated by Feagans and her brothers, Bob and Rich Brauer. They finish about 65% of the pigs they farrow. There are about 15 employees. Expansion now underway will increase their herd by 2,400 sows.

Their cafeteria plan allows employees to choose from health insurance, medical reimbursement, dependent care and disability insurance. It's called a cafeteria plan because the employees can take none, some or all.

The health insurance is a group plan. Feagans says the monthly costs for the $500 deductible plan for a few of the employees, based on age and sex, are as follows:

Male up to age 29 - $ 62.03/month

Female up to age 29 - $ 99.96/month

Male age 45 to 49 - $129.16/month

The female rate does not include any pregnancy benefits. Employees who include their families pay more.

Any employee who participates in the health insurance has the exact amount withheld from his/her pay because none of that amount is taxed. The disability insurance is a set amount, too, so that amount is withheld for those who choose it.

"The other two are harder to determine," says Feagans. "It's a use-it-or-lose-it deal. Therefore, the employee doesn't want to put in more than he's sure he will use. But, since the money is put in before tax (like getting a tax deduction), you don't want to put in a lot less than you're going to spend."

The medical reimbursement plan will cover any medical cost the health insurance doesn't, including dental work, eye care and even mileage to and from the doctor.

"If an employee puts $1,000 into the medical reimbursement plan and they only spend $600 during the year, part or all of the other $400 is lost," says Feagans. "But we keep a close eye on it and suggest some elective things such as dental care and eye glasses near the end of the year to use any excess."

The limit any Oasis employee can invest in his/her medical reimbursement fund or the dependent care fund is $5,000 in each. If a family expects to spend $3,000 for child care, for example, they will want to come as close as they can to putting that much in since it is exempt from tax. Health insurance and disability insurance is, of course, limited to the amount of the premium. "You can't mix the funds," says Feagans. "You can't take out of the medical reimbursement plan to pay for dependent care if the medical has money and the dependent care fund has run out, for example."

Keeping Costs Down Feagans gets quotes from different group health insurance companies frequently to make sure their present rates are in line.

"I list all the employees, if they are male or female, their birth dates and if they smoke or not," she explains. "Then I submit that to different companies for quotes.

"It's hard to compare," she warns. "You can't always compare apples-to-apples because of the different options different companies offer. But you can tell if you're in the ballpark.

"Some companies will give you a good rate the first year and then raise it significantly the second year. Or, maybe your present company has just had a rate increase and the new one might be just ready to have a rate increase. Before you change, check out when they had their last rate increase," she says.

Her experience also indicates that the insurance company can raise premiums relative to the claims. She believes that could price you out of health insurance.

On the last go-around of checking prices, the employees had asked about a lower deductible. In checking with one company, going to a $300 deductible rather than $500 was going to cost $318 more per person for their group for the year. Feagans figured the most anybody would save was $160. She reasons that insurance companies are pushing for insureds to go to higher deductibles.

Feagans has also experienced that group insurance is often more expensive than individual plans. Of course, the trade-off is some individuals who can't qualify for individual insurance are covered by group plans.

Feagans closing advice is to talk to a lot of people before you choose a policy or an insurance company. "Try to put somebody in there who doesn't have anything to gain from what you end up doing," she suggests. "Anytime I talk to somebody, I try to look at it from the perspective of what do they have to gain from what they are telling me."