Most Small Businesses Baffled By Health Plans, NAIC Survey Finds

An insurance regulators' poll of small businesses finds nearly two thirds of owners lack the know-how to pick a health plan fitting their company's finances and workers' needs.

The survey was done by the National Association of Insurance Commissioners, which said its findings highlight the need for more insurance education, even as the debate over national health care reform continues around the country.

In the NAIC survey, conducted July 22-31, among a participant sample of 500 small business decision-makers, 64 percent of small business owners responded that they are not confident picking a health insurance policy that fits their budgets and their employees' needs.

One-third admitted that they cannot afford to provide health insurance to their employees.

The study found what the NAIC said is "a clear gap in understanding the fiscal responsibilities associated with offering health insurance."

Of the small business owners surveyed, 60 percent said they are not confident they understand the tax implications of paying for a portion of their employees' health insurance premiums. Only 27 percent say they understand all the factors that can affect their small group health premiums.

NAIC President and New Hampshire Insurance Commissioner Roger Sevigny said, "In this economic environment, small business owners need to be especially mindful of any decision that will affect their financial future.

"Now, more than ever, it is important they get smart about their choices and consider the implications that making a bad decision could have on their business and their employees' future," he concluded.

In addition to announcing the poll results, the NAIC released a list of tips on "How to Improve Your Small Business Health Insurance IQ." Among its recommendations were:

o Before purchasing any insurance policy, companies should interview several licensed insurance agents specializing in the health insurance needs of small businesses.

o The costs of equivalent coverage from several insurers should be compared to ensure the best deal.

o Insurers should be asked how premiums have increased over the past five years.

o Discussions should be held with other small business owners about their experiences with health plans and insurers.

o The relevant state insurance department should be consulted to confirm that the agent or broker being dealt with is licensed. (The Web address www.naic.org/state_web_map.htm provides a link to state insurance department Web sites.)

o Before selecting a health plan, employees should be surveyed to find out what coverage they consider particularly important.

o The factors that influence the cost of the small group coverage should be understood.

NAIC noted that states vary with respect to the methods they permit for calculating premiums. The range of premium rates an insurer can charge a small business is typically set by state law for employers offering plans with the same benefits design and which have similar "case characteristics" (e.g., age and sex of employees, geographic location of the business and other objective information).

In other states, a method called "community rating" is used to determine premiums, where everyone in a specific geographic area pays the same rates for health insurance.

Businesses, NAIC said, can generally deduct 100 percent of the premiums they pay to qualifying health plans for their employees. Firms, NAIC suggested, should discuss this matter with their accountant or tax advisor.

Companies should learn their rights with health insurers by checking with state insurance departments, NAIC said. Typically, small group health plans must treat equally all of the eligible employees (generally full- or part-time employees who work at least 30 hours a week), NAIC said.

Some states may have a special program to assist small business owners with providing employees and their dependents with health insurance.

Businesses should learn about COBRA and other federal regulations for small business employers offering health plans, NAIC advised.

NAIC's Consumer Information Source (CIS) at https://eapps.naic.org/cis provides information about insurance companies, including closed insurance complaints, licensing information and key financial data.