With all this talk about health care reform, here is one entrepreneur’s thoughts on how to choose a health care plan that fits the needs of your employees.
Understand your employees
The type of health care plan you’re looking for depends on who your employees are. If they are generally healthy, you might need a different plan than if they are more prone to illness and health needs. If your employees have higher salaries, (like at an Internet company) you can offer a more flexible health care plan than if your employees are lower-salaried or paid hourly.
Group policies are usually more expensive than individual policies
There is a huge myth that employers pay less than individuals for health care. That’s only true for people with chronic illnesses or people who are very large consumers of health care. For a relatively healthy person, a group policy plan costs roughly twice as much as an individual policy plan. (If you hire an employee who is used to paying for health insurance herself, she might be bewildered what the company pays for her.)
The reason why employers pay more for group plans is to offset the insurance company’s risk for future hires. Because insurance companies guarantee their premiums no matter who a company hires, they will charge more to cover the future employee with high health-care needs and in doing so, raises the premiums for everyone. This is especially true for small companies who do not have tons of employees to lower the average cost from one potential high-cost employee.
HSAs are awesome
Health Savings Accounts (or HSAs) are essentially flex-spend IRAs that helps individuals save approximately $3000 per year tax-free on anything medical spending (including contact lenses, eye doctor and dentist visits, etc.). And unlike their ugly cousin, the Medical Savings Account (or MSA), you don’t have to spend the money you put into an HSA in that calendar year — anything you don’t spend rolls over to the next year. The main issue with HSAs is that they are only legal with certain (usually high-deductible) health care plans. However, their benefits more than warrant the effort in finding a plan that makes HSAs a reality.
Tip: sometimes it is hard to know which expenditures are health related and which ones are not. For instance, is an aspirin purchase health related? Sites like drugstore.com make the decision is made for you – you enter in credit card info for both your HSA and normal credit card and they will automatically deduct them accordingly.
“Health care” or “health insurance”
Do you want to get a plan that covers all the little health related issues, or do you want insurance that covers just high-cost things? I personally think insurance is much better for people at a high-tech company where salaries may be higher, especially since little of the insurance costs are covered by employees themselves. These plans are generally called “high deductible plans” since the employee has to cover the first $3000 – $5000 of expenses in the year. While that may be a lot to cover, insurance plans come with massive flexibility – you can go to almost any doctor or specialist you want without having to go through referrals or waiting. And if anything bad happens, the insurance covers ALL costs over the deductible. So if your employees are well-paid, this is a good plan because it has maximum flexibility, is much lower cost, and can be paired with HSAs.
Companies with more hourly workers will have to make a different calculation. In their case, health “care” might be more appropriate because the hourly worker might not be able to afford a $300 doctor test.
Summation: look closely at your employees and make a health plan accordingly.
(Special thanks to Michael Hsu and Jenny Oh for helping edit and research this blog on health care)