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Employee health insurance rates for small businesses are soaring, making it more and more difficult for business owners to provide insurance that’s both adequate and affordable. The 2004 Annual Employer Health Benefits Survey reported that at 11.2%, employer-sponsored health insurance rates had increased at about five times higher than the rate of inflation, the fourth year in a row of double-digit rate increases.

Small business health insurance rates for families have risen 59% since 2000, with no relief in sight for the immediate future. A small business owner’s best hope for keeping rate increases to a minimum is by understanding the different health insurance options available for their employees. Here are some tips for understanding the features of the most common health insurance plans.

Fee For Service Plans

With a fee for service plan, an employee is allowed to see the doctor of his or her choice, and the doctor is reimbursed for those services covered by the medical plan. Doctors are usually paid 80% of the “reasonable and customary cost” of their services, with the employee being responsible for 20%, although it can vary with the plan. Fee-for-service plans have reasonable deductibles and generally have the best coverage, but also have the highest insurance rates.

Managed Card Plans

The three most common types of managed care plans are:

  • Health Maintenance Organizations (HMOs): In an HMO a patient receives his medical care through the plan’s network of doctors. Usually, he would need to choose a primary care physician, who coordinates his care and is responsible for referring him to doctors in more specialized fields as needed. An HMO usually doesn’t require a deductible, as long as you stay within the network of doctors that are part of the HMO.
  • Preferred Provider Organizations (PPOs): A PPO health insurance plan offers a little more flexibility than an HMO plan, but the rate is usually a little higher. It has features of both a fee-for-service plan and an HMO but generally doesn’t require that a patient have a primary care physician.
  • Point of Service Plans (POS): A Point of Service plan is similar to an HMO in that it also has contracts with very specific doctors, hospitals and other health care providers, and requires a patient to have a primary care physician. Where it differs from an HMO in that the network of doctors a patient is allowed access to is generally a little larger, and the plan requires that an employee pay a deductible, the amount of the deductible depending on the plan.

Health Insurance Savings Accounts

Health insurance savings accounts, or HSAs, are sometimes the best solution for small business owners. They have a very low monthly premium but a high deductible, between $1000-$2000. However, they allow employees to contribute money for health expenses into an interest-bearing, tax-free account.

The small business owner can also contribute to an employee’s account and still save a significant amount each year on health insurance costs, depending on how healthy her employees are. There are no co-payments for employees, and once the deductible is reached 100% of all medical expenses are covered. Any unused money in the HSA at the end of the year can be rolled over into the next year.

The best tips for helping small businesses to keep health insurance rates as low as possible is to re-evaluate insurance plans often and encourage employees to stay healthy. The less often employees need to use their insurance plans, the better for their health and also for the small business owner’s fiscal health.

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