Before you can understand who will be covered and how much it will cost, you need to learn the different types of insurance plans. The two main types are PPO and HMO.

Preferred provider organization (PPO) refers to a network of health care providers. This means your employees can choose from a list of these providers within their area or network.

A health maintenance organization or HMO is another common plan that provides health care but means your employees must use the health care providers in their organization.

Who you cover will affect how much you can afford to pay. You will want to cover yourself, and likely you are trying to cover your employees. But does this include all employees?

Do you intend to cover part-time and full-time employees? Will your employees receive prescription drug coverage and dental?

Consider the needs of your current employees. Think about how frequently they may need to visit the doctor and what types of health coverage are most important for their needs.

Did you know that the average cost of individual health insurance under the Affordable Care Act is over $462 a month, without subsidies? You may also not know that this is because employers cover the difference in cost.

If you are able to contribute 50 percent or more of the premium toward employee plans, this will help make the health insurance cost far more affordable for your employees.

The first main type of cost associated with health insurance is paying the monthly premium, which is the amount that must be paid to maintain coverage. But there’s also deductibles, which are the expenses employees pay when they actually receive care.

If you choose a health insurance plan with a low monthly premium, the trade-off might be a higher deductible.

As the employer, you’ll need to decide if you want to offer coverage to the families of your employees in addition to the employees.

This might all depend on what you can afford and your general demographic for employees. If you work at a small store with very young employees, this may not be a priority.

Not all small business owners are required to offer health insurance to their employees. Take note, however, that once you do offer health insurance to an employee, you are obligated to offer it to all your other employees. Your broker should be able to help you identify the needs of your workforce and provide you with several plans that address the specific needs and concerns of your team, especially if your employees will require a special amount of coverage.

Don’t forget that you’ll need to explain the coverage to your employees, as well as be able to answer any questions they may have about the insurance plan. One question you will need to answer is how to process claims when obtaining out of area services. Be sure your broker can assist with employee questions directly and explain the steps employees will need to take to file claims, get reimbursements, etc.

No law directly requires employers to provide health care coverage to their employees. However, the Affordable Care Act imposes penalties on larger employers that fail to provide health insurance.

Under the ACA, employers with 50 or more full-time employees (or the equivalent in part-time employees) must provide health insurance to 95% of their full-time employees or pay a penalty to the IRS. This penalty is quite hefty—$3,860 per employee per year (in 2020). As a result, large employers have a strong incentive to provide health coverage. However, employees have no right to demand health care under the ACA.


Remember that even if a total maximum exposure is 100% of a fully insured cost, the potential savings for that year is in the unused claims monies. Most employers will recognize the max costs and understand the potential for savings. They’ll see that even with a maximum exposure of 100% when compared to the cost of a fully insured plan, they have nothing to lose. In fact, most brokers find it’s not unusual to sell a self-funded plan with a maximum exposure 3, 5 or 10 percentage points higher than a fully insured premium because of this potential savings.

According to the Affordable Care Act, a large group is defined as 50+ employees. In the past, it was believed that self-funding was only suitable for very large groups (500-1000). However, employers are learning that it is possible and even advantageous to self-fund your health plan down to as little as 5 employees.

The Specific deductible is predetermined at a level the employer is comfortable with and is usually based on group size. The Aggregate factors are calculated actuarially by the company offering the insurance protection. They take into account the employee census, location, any known pre-existing considerations and then add a buffer for their own profitability.

No, their plan documents will tell them the plan is self-funded, but unless an employer wants to change benefits the employees can have the same benefit structure they enjoy now.

Another benefit of a self-funded plan, however, is that benefit design can be very flexible – and these plans can cross state lines. (Self-funded plans fall under federal ERISA regulations, not state insurance commissions, making this possible.) This means an employer with multiple locations can offer the same plan and benefits to all, or tailor benefits based on locale, and still have everyone fall within the same self-funded plan umbrella. This is especially advantageous for employers with multiple locations.

This is actually an unusual scenario because of the “run-out” or “run-off” claims the prior carrier is still responsible for. (See Illustrated Example) The fully insured carrier from the previous year is still responsible for all claims incurred in that year, even if it takes several months for them to be adjudicated and paid. This lowers the liability exposure for the employer in the first few months of the new self-funded plan year.

If this is still a concern to potential employer clients, insurance can be added to the fixed cost portion of the self-funded plan to cover claims over a bank’s assets for the first few months of the year. This only adds a buck or two per employee to the fixed costs.


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