How to Choose a Managed Care Plan for Your Company

Deciding on a group health insurance plan for your company isn't done lightly. Especially when you consider that, after paid vacation, health insurance is reportedly the most important benefit to employees.

Due to rising healthcare costs and the industry trend toward consolidation, small business owners will most likely choose a managed health care plan for their employees. There are two types of managed care plans — health maintenance organizations (HMOs) and preferred provider organizations (PPOs).

HMOs vs. PPOs

Typically, an HMO is the most affordable managed care plan for employers and their employees. As long as employees visit approved, in-network doctors and hospitals for their medical needs, an HMO provides full reimbursement for most services. Health care providers within the HMO network are encouraged to limit fees in exchange for a guaranteed number of patients.

In contrast, PPOs are less restrictive in terms of choosing doctors, but more costly for employers and employees. PPOs generally cover network doctor visits with some type of copayment. But employees are generally required to pay more upfront costs and are not fully reimbursed for visiting doctors and hospitals out of the network. PPOs control costs by balancing employees' freedom of choice against out-of-pocket expenses.

Comparing Insurance Options

Before constructing or choosing a health plan, employers should find out what their employees want. After discussing options — and controlling their employees' expectations — small business owners should contact an independent agent or broker who should be able to provide a full explanation of choices.

When reviewing your insurance options with an agent or broker, ask the following questions:

• Is the insurance carrier licensed, accredited, reputable, and financially secure?
• Are policies renewed every six months or each year?
• Is the plan easy to administer?
• Are claims processed and paid quickly?
• Does the insurer provide educational and other communications materials to employees?
• Does the insurer underwrite the policy as a group, as individuals or both?
• Does the managed care plan provide sufficient financial incentive to encourage employees to select network providers?

In addition to price quotes, it's a good idea to collect full proposals from insurers, including information about their customer services and claims-paying abilities.

When comparing healthcare plans, you should keep certain things in mind. These include:

Affordability of Coverage

• How much will it cost the company on a monthly basis?
• Should you insure just for major medical expenses or for all medical expenses?
• Are there deductibles to pay before the insurance kicks in?
• After the deductible, what part of the costs is covered by the plan?
• How much more does it cost to see a provider outside the plan?

Scope of Coverage

• What doctors, hospitals and other providers are part of the plan?
• Are there enough of the kinds of doctors you would expect to have?
• Are the providers located conveniently for your employees?
• Does the plan require permission for specialist referrals?
• Are there limits to how much will be covered by the plan?
• Does the plan cover the expenses of delivering a baby?
• Does the plan include prescription drugs?
• Does the plan include drug and alcohol treatment, mental-health care, home healthcare, hospice care, physical therapy and so-called experimental treatments?

Quality of Coverage

• How do independent government organizations rate the plan?
• What do friends say about their experience with the plan?
• What does a doctor say about their experience with the plan?

Read more about employee benefits to get a sense of the different components of a good benefit plan.