More Small Business Health Insurance Basics In Texas

Because premiums, deductibles, copayments, and coinsurance levels for small business group health insurance policies in Texas can vary widely from plan to plan, it pays to shop around.

Have a good understanding of your employees' healthcare needs before you start shopping. Do they require frequent medical care or do they rarely see the doctor? Are they more concerned about preventive checkups or coverage in case of emergency? Are prescription or maternity benefits important to them? This is an essential first step. You want to purchase a plan that offers the medical benefits your employees need, without a bunch of "extras" your employees won't take advantage of. You'll pay for these "extras" in the form of higher premiums.

When shopping for coverage, the Texas Department of Insurance recommends keeping these guidelines in mind:

- Be sure you understand the full extent of each plan's coverage when comparing plans and rates. If you decide to go with a consumer choice health benefit plan over one with all the state-mandated benefits, the carrier or agent is required to explain in writing which coverages you don't have.

- Plans with higher deductibles, copayments, and employee share of coinsurance generally will have lower premiums. Keep in mind, however, that your employees will also have to pay more out of pocket when they access services or benefits.

- Consider factors other than cost, such as a company's financial strength and complaint record. These are indicators of the service you can expect. You can learn a company's financial rating, as determined by an independent rating organization, by calling the Texas Department of Insurance (TDI) Consumer Help Line. You can also learn information about the frequency of consumer complaints filed against specific companies by calling the Consumer Help Line: 1-800-252-3439/463-5515 in Austin.

- Look into purchasing cooperatives. These are groups of small employers with similar health care needs who join together to negotiate discounted rates for shared plans. For a list of registered purchasing cooperatives in Texas, call the Consumer Help Line.

- Buy only from licensed insurance companies. Selling unlicensed coverage is illegal in Texas. If you buy from an unlicensed carrier, your employees' claims could go unpaid and you could be held liable for the full amount of your employees' claims and losses. Guaranty associations pay the claims of licensed carriers that become insolvent. You can learn whether a company is licensed by calling the Consumer Help Line.

- Understand that employee health coverage is different from workers' compensation insurance, which covers only job-related injuries and illnesses. Although workers' compensation insurance is not required in Texas, it protects you from high damage awards in the case of workplace accidents. Providing regular health coverage to your employees is not a legal alternative to providing workers' compensation insurance.

Who Pays and How Much?

The law doesn't require employers to contribute toward health benefit plan premiums. However, many carriers require employers to pay at least 50 percent of the plan's premiums. Employers may choose to pay a higher percentage than the carrier requires.

The carrier must offer dependent coverage to all eligible employees. Generally, employers are not required to contribute toward the cost of dependent coverage. If the employer doesn't contribute, employees may have to pay all of these costs themselves.

Premiums may increase at each renewal term, largely due to rising health care costs and possibly as a result of employee claims experience. Texas law caps small-employer rate increases due to health factors at 15 percent per year.

Insurers cannot require businesses to purchase additional lines of insurance, such as life insurance or disability insurance, as a condition of the sale of a health plan.

Employee Signup and Waiting Period

New employees must be given at least 31 days from their start date to enroll in a plan. After this time, they may be required to wait up to one year for the next "open enrollment period" to join. Carriers must offer a 31-day open enrollment period annually.

You can choose to require your employees who enroll in a plan to wait up to 90 days before being eligible for benefits. During this period, the carrier may not charge you or the employee a premium.

Carriers may require participants to wait a certain amount of time before covering pre-existing medical conditions. In general, plans have different rules for pre-existing conditions. Plans using the open-enrollment requirement cannot make new members wait more than one year before covering their pre-existing conditions.

New enrollees who were covered in the year prior to joining a plan also receive credit toward the waiting period on a month-for-month basis. For example, an employee who was covered under creditable coverage for the entire year before joining a new plan would receive 12 months credit toward a one-year pre-existing condition wait -- and would therefore experience no wait at all. For previous coverage to be considered creditable, there may not have been more than a 63-day break between the end of the previous coverage and the start of the new coverage.

A small business employer carrier cannot refuse to provide health coverage for employees on the grounds of employee illnesses or pre-existing conditions. Nor may carriers use health-related factors -- such as employees' prior claims experience or information on conditions arising from violent family situations -- to decide whether to provide coverage.

How Small Employer Plan Premiums are Calculated

The rates for any given small employer plan are not solely determined by the benefits and deductibles of the plan itself. Certain objective "case characteristics," along with any health status-related factors of employees, may also be components in determining the premium rate for the small employer group. Case characteristics consist of age, gender, group size, industry, and geography. Carriers can use some or all of these five objective criteria:

- Age of employees: Older people can reasonably be expected to have more expensive and more frequent health-related claims. Generally, the older your workforce, the more your plan will cost.

- Gender: Females generally incur higher medical costs than males at younger ages, particularly during childbearing years. The variance diminishes with age until medical costs for males begin to exceed those for females as they near ages 50 and 60. If you have a younger, proportionately more female workforce, or one that is older and proportionately more male, expect to pay higher premiums.

- Number of plan participants: Carriers often base rates on group size for two reasons. As size increases, administrative costs per insured decrease. Also, smaller groups tend to buy health coverage based on the targeted needs of participants, increasing the likelihood of claims for the benefits provided. As group size increases, this "custom-tailoring" becomes more difficult and premiums tend to decrease. However, the highest group size factor may not exceed the lowest group size factor by more than 20 percent.

- Industry: Some industries have higher medical claims costs than others because of working conditions and the prevalence of accidents. High employee turnover in some industries can also result in higher administrative costs for the carrier. However, the highest industry factor a carrier charges may not exceed the lowest factor by more than 15 percent.

- Geographic area: Health care costs vary by region due to differences in cost of living and medical practices, as well as the amount of medical competition in the area. Most plans vary rates by either county or ZIP code, using the employer's business address to set rates.

The rating process for a small-employer group can be described as a two-step process. First, a carrier determines a premium rate based on case characteristics and plan design, without regard to health status-related factors. This produces the baseline price of the policy. Second, the carrier may adjust the rate to reflect health status-related factors of the group. This adjustment must apply uniformly to all members of the group and may not exceed 67 percent of the baseline price of the policy.

Group health insurance can be not affordable for many small businesses, not to mention an administrative headache. Another alternative to group health insurance plans is to offer individual health insurance options to your employees. By law, an employer is not allowed to contribute to these plans, or that would be treated as group insurance under Texas state law. But you can still help your employees become insured in a good plan and improve their health and well-being and also improve employee retention in the process. If you're a small business owner who would like to offer affordable health insurance plans to your employees, but can't afford group health insurance, you should consider offering your employees the revolutionary, comprehensive individual health insurance solutions created by companies specifically for young, healthy individuals.