Business Matters: Navigating the health care maze

An affordable, effective health care plan is a major incentive for attracting and retaining skilled employees, regardless of a company’s size. But contractors often struggle to find good health care plans at affordable rates. This is especially true for companies with less than 20 employees.

There are several reasons for this. First, health care in the United States today is expensive. According to a March 2005 article at, health insurance premiums have risen about 60 percent since 2001. At the same time, average per-employee costs for health care rose by 7.5 percent, despite companies’ efforts to transfer costs to employees, usually by raising deductibles and requiring workers to co-pay for health care coverage.

Census data in 2003 showed 45 million Americans were uninsured. And a large portion of these uninsured workers were employed by small businesses. According to the Kaiser Family Foundation, a nonprofit organization that provides information and analysis on health care issues, the number of small business firms offering health insurance fell from 63 percent in 2000 to 59 percent in 2005. The study also revealed that in 2005, the average cost of single coverage was $335 per month, while family coverage cost around $907 per month across all professions.

“Obtaining affordable health care for any small employer is challenging since a plan’s cost is based solely on that employer’s demographics,” says Eric Fowler, vice president of Fringe Benefit Group, which works with small construction firms.

The premiums for business health care are based on the size and type of the business looking to be insured. Construction on average will have higher premiums because it involves high risk in unpredictable conditions.

Contractors aren’t likely to find any relief from Washington, either: On May 11 the U.S. Senate failed to approve a motion to bring the Health Insurance Marketplace Modernization and Affordability Act to the floor. The bill would have pushed down health care premiums for small businesses by allowing them to join together to gain the same economic advantages available to larger corporations.

The bill had several failings, say its opponents. The group plan would not require insurers to cover a variety of routine medical costs such as cancer screening, mental health treatment and contraceptives – even where required by state laws. And it would allow insurers to cover businesses with only younger, healthier employees if they so chose.

“Small businesses have a wide variety of choices in plan design depending upon the state in which they are located,” says Wade Newton, spokesman for the Associated Builders and Contractors. “Access to health insurance is not the main issue. It’s really a question of affordability. Small employers are at the mercy of large insurance companies that have a ‘take it or leave it’ attitude with their products.”

And the high risk nature of construction makes matters worse, leading insurance companies to charge pricier premiums than they do for other small businesses or to shy away from covering construction firms at all.

Making the choice
Besides price, the biggest challenge many contractors face in choosing a health care package is finding a plan that is a good fit for their specific requirements. There is no simple answer; premiums change every year, the employee co-pay often changes and state and federal rules can affect costs and coverage unpredictably.

At first glance, health care plans can be an alphabet soup of choices. But it’s important to understand the differences among plans so you can make an informed decision.

Several types of health care plans have been around for awhile. Traditional health care plans – also known as indemnity coverage – have the advantage of being flexible. They allow policy holders to visit any doctor they choose and receive any treatment covered by the policy. Usually a member of this plan can go to a specialist without a referral, whether the insurance company considers the visit necessary or not.

The disadvantage of these plans is cost. Since there are few oversights or cost-saving measures associated with traditional plans, premiums tend to be higher than other types of plans. Traditional plans also have higher out-of-pocket expenses and require high deductibles and a co-insurance setup in which the provider pays the majority of the bill, but the insured pays 5, 10 or 20 percent of each charge.

The first alternative to traditional insurance was the health maintenance organization, a plan that is recognizable to most Americans. HMOs work through a network of doctors and hospitals as a way to cut costs. This grouping of resources makes HMOs the plans with the lowest costs, but with the least amount of flexibility.

HMO members are given a list of primary care physicians who perform basic checkups and then refer the patient to other specialists. Visits to nonparticipating doctors or hospitals require the HMO member to pay for their own medical costs. This also means employees who use a physician outside the network have to switch doctors when starting the plan, or pay the full cost of the medical visit.

One of the most popular health plans available is the preferred provider organization. A PPO is a collection of physicians and hospitals that agree to provide medical care to PPO members at reduced costs. This is a way to limit costs to members without the restrictions of the HMO.

PPOs are similar to traditional health care plans. But unlike traditional plans, PPOs have two different levels of coverage depending on the providers used. Visits within a network require a low deductible and little or no co-insurance. Visits outside of this network require higher payments. This is designed to encourage PPO members to use specific physicians and hospitals.

While PPOs have the highest enrollment, they also have some of the highest premiums. In 2005, the average annual premium for single coverage in construction was $3,933, and family coverage was $10,301. The premium for single coverage from an HMO was $3,619, and family coverage was $10,994.

The point of service plan, or POS, is also known as an open-ended HMO because it combines the elements of both HMOs and PPOs. Like the HMO, members choose a primary care physician who provides referrals when needed. Members are free to visit out-of-network providers if they choose, with or without a referral, but they may also pay higher fees. These plans are popular because they have the savings of the HMO but still provide coverage if the member wants to choose a specific physician. POS plans usually have average single coverage costs, but offer savings with family plans. POS plans average $3,666 for annual single coverage but were the least expensive of all the plans with their $9,911 family coverage.

Some people think individuals should play more of a direct role in meeting their own health care costs. To that end, consumer-driven health care, or CDHC, has gained acceptance from employers because of the high costs associated with the other forms of health care.

CDHC may include a variety of plans, but the most common is the health savings account. The HSA is driven by pre-tax contributions made by employers and employees that can be used for routine or preventive health care. The unused portion of the accounts can rollover and be used year-after-year. The biggest concern with this plan for the consumer is its high deductibles, which can cost $5,000 or more a year.

CDHC is also offered as “cafeteria plans,” which give employees a broad menu of health care choices. This type of plan can reduce costs, but employees can feel a bit left on their own. Still, CDHC is becoming popular with companies, and some in the insurance industry project it will replace HMOs and PPOs.

Help is available
There are organizations that can help you sift through the maze of health care options. Professional employer organizations are quickly becoming an option for those who don’t have the knowledge or the time to try to understand the assortment of health care plans available today.

“For certain insurance-related actions, such as unemployment claims, insurance payments and tax payments, the PEO assumes the role traditionally taken by an employer,” says Edie Clark, spokeswoman for the National Association of Professional Employer Organizations. “The IRS would look to the PEO if there was an issue with any kind of payment of social security or taxes. The PEO business client deals with the day-to-day activity such as paying the employee’s expenses when they travel. The PEO is like a human resources department in terms of its services.”

Once a company contracts with a PEO, the two become co-employers of the PEO client’s work site employees. PEOs do not employ the client’s workers in the traditional sense, but take over the responsibility for the firm’s employment operations such as human resources management, health insurance, payroll, employee tax compliance and workers compensation and claims management. The firm retains the management of its business operations and products.

According to NAPEO, 2 million to 3 million Americans are currently co-employed in a PEO arrangement. The average company that has a PEO agreement employs about 17 people. PEOs operate in all 50 states, although the licensing, registration and regulation of PEOs may differ from state to state.

There are two things you must understand about a PEO: First, they do not actually sell health insurance. The PEO offers health plans to its business clients through its arrangements with insurance carriers, and often these plans are similar to those offered by Fortune 500 companies. Second, many PEOs have concerns about working with high-risk industries such as construction firms. It will take a bit of research to find out which ones are friendly toward construction firms.

How to find health care
The most important step to finding the best health care for your small contracting firm is to do the proper research. You will have to weigh the costs and benefits of each plan. Also, every contractor’s situation is different. What may be acceptable to one business may not be to another. Employers should look at the services an agent or company provides such as flexibility and responsiveness. Many experts in the field also caution that finding the lowest price shouldn’t be the most important aspect of finding the proper plan.

“You need to pick a reputable company with some name recognition,” says Newton. “If the price from one carrier or plan is too good to believe, then it probably is and the contractor should pay very close attention to the plan and the carrier’s solvency.”

Where to look for health insurance
While there is no way to provide an exhaustive list of companies that offer health care to contractors, these websites can serve as a start.

You can receive multiple price quotes on business services, including health insurance, at this site.

Fringe Insurance Benefits
This company has helped employers and associations design and administer fringe benefit programs since 1983. Through its nationwide network of independent brokers and agents, FIBI offers government contractor health, welfare, and retirement plans and group benefit plans designed for hourly and part-time workers.

Associated Builders and Contractors
A national association representing 23,000 non-union construction firms, ABC operates an insurance agency that researches a database of 60 national and regional insurance companies to find the best products and rates for its members.

Independent Insurance Agents and Brokers of America
This is a national alliance of 300,000 insurance agents and brokers who offer all types of insurance and financial services products. Unlike company employed agents, IIABA members represent more than one insurance company, so they can offer a wide choice of insurance plans.

National Association of Professional Employer Organizations
This site offers information about professional employer organizations, including the health benefits they provide and where they can be found in your area.