How Do I...Pick a Health Insurance Plan

It can be a headache for a very small business trying to find the best health insurance, but there are a variety of tools and resources available to help alleviate the pain.

A little more than 50 percent of the 18 million firms in the U.S. with fewer than 10 employees are uninsured, according to a 2005 study (pdf) conducted by the National Association for the Self-Employed, a small business advocacy group based in Washington, D.C.

The association is updating that data with new results due out shortly. Kristie Darien, executive director for the group's legislative office, anticipates that the number of uninsured will increase. "Costs have continued to rise, and there's been no relief on the issue within the industry or marketplace," she said.

A sole proprietor of a business who earns an annual salary of less than $50,000 a year spends about 18.7 percent of annual revenue on health insurance, according to NASE. A business generating more than $500,000 annually spends about 2.3 percent of that money on health insurance.

A one-person business generally has health care options that are restrictive and costly, according to Darien, whose group represents 250,000 small firms.

Darien points out that a 5-person firm may have difficulty affording insurance for all staff if even just one employee is a smoker. "That one smoker can cause the cost of a business's plan to skyrocket and likely be unaffordable."

"Entrepreneurs are experts in their field or industry, but not necessarily experts in the field of benefits and human resources," said Darien. "It's a whole different skill set."

Here are some tips from NASE on choosing a health care plan:

1. State departments of insurance. Each state has one that is responsible for regulating and approving all health policies within the state. These offices offer resource guides on companies providing health insurance within a particular state. Additionally, anyone in the market for a plan can find out if companies have had a lot of complaints. Click here for the departments in Virginia , Maryland and D.C.

2. Web guides. Darien suggests as a good tool. A user can enter personal data and the site will return price quotes for the particular state where a business is located. "It's a good first step and it gives you a ballpark figure for what your policy might cost, but you really do need to speak to an agent or broker about your specific policy before you purchase one," she said.

3. Trade associations. Many offer discounts on health plans for members. While Darien's outfit offers discounts on insurance, she also recommends searching for very specialized associations. For example, a self-employed plumber might find the best plan through a national plumbing association.

4. Smart shopping. Buy coverage that fits your specific needs. Choose to have a higher deductible, if that makes sense for you, because the monthly premium is likely to go down. A lot of high-deductible health plans cover annual physicals and some preventative care at no additional cost. Many NASE members shop for health insurance two to three times a year. If a business owner's current health condition is good then he likely will be able to secure insurance. But if you're an entrepreneur that has high blood pressure or heart issues, you may be rejected or denied coverage due to a preexisting condition. "Your current health condition is a bigger issue than shopping around a lot," said Darien.

5. Analyze your health risks. Identify which criteria to give to your insurance firm. "If you tell a health insurer that you'll raise your deductible and cover certain associated costs, the company may be more inclined to work with you," she said.

6. Get involved. Health care costs are high, so don't be afraid to say something to local policy makers. It may be the only way to effect change.

When a small business can't afford health insurance, some firms turn to health reimbursement arrangements.

HRAs are a type of health insurance plan that reimburses employees for qualified medical expenses.

An HRA is a written document created by a business owner that must be consistent with IRS guidelines. A small business owner could fashion a form that says, for example, "I will contribute $500 toward allowable medical expenses for each of my employees." If an employee buys a pair of glasses, she can submit the invoice and form to her employer, who will then reimburse her for the cost of the glasses up to $500.

"It's not health insurance, but it's a great tool because a business owner doesn't have to deal with the administrative issues and large costs of a health plan [for employees], according to Darien.

In response to NASE's 2005 study (pdf), the group last year published a free 44-page guide to understanding health coverage for micro businesses, which can be ordered online.

Among the information and resources it provides, the guidebook offers a simple explanation on how to set up an HRA.

While it's a great solution in many cases, according to Darien, there's a major problem with HRAs. Self-employed people aren't eligible. If you're the sole proprietor of your firm, you are not considered an employee and that means you can't participate. The NASE is seeking to expand the rule to include the owner.

The booklet covers a gamut of issues such as defining health insurance terms and helping the self-employed determine whether to shop for health insurance online or in person. The guide also focuses on "wellness" and how it can boost staff health and a company's bottom line.

By Sharon McLoone |  August 23, 2007; 11:00 AM ET How Do I...
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Another good resource for finding free information on individual health plans is

Posted by: Jake Davison | August 23, 2007 1:51 PM

i would second the point about while is a good clearinghouse you to need to talk to a broker. i signed up for insurance on and was told, at the time, i could choose my own doctor, etc.. this has proven not to be the case and i am thinking of switching. i was also forced to sign up for some $3 a year plan for something completely unreleated in order to get the rate

Posted by: todd sanders | August 25, 2007 1:53 PM

The best way to find Affordable Health Insurance is to do your research. With the amount of information on the internet today, it is hard to have time to read and understand everything. Health Plan One makes it simpe to compare plans and quotes amongst the largest carriers

Posted by: Jake Hannan | October 8, 2007 4:27 PM

After many years of managing large organizations in the corporate world I started my own small business five years ago. I have struggled to offer a solid health care plan for my employees. We have had steady growth over the years, but not the cost of health care has grown even faster. Do you know of any states that offer a subsidized small business health care plan like Arkansas?

Posted by: Cheryl's Office | January 4, 2008 3:05 PM

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