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10 Steps to Recession-Proof Your Business Insurance
The following steps are the outline of a business group / Chamber of Commerce talk that I sometimes give. Please call if you have questions, comments or would like me to address your group on this or another Risk Management & Insurance Topic.
1. Don’t Forget to Save the Easy Money
2. Capitalize on Your Rating Base
3. Save Big $ on your Property Insurance
4. Don’t be Penny Smart & Pound Foolish / Liability Protection Tips
5. Save $ on your Health Insurance
6. Save $ on your Workers Compensation Insurance & Claims
7. Save $ with Certificates of Insurance
8. Consider Dropping the Bells & Whistles
9. Know how much Business Interruption Protection you Need
10. Hire an Independent Agent to be your Advocate
Health Insurance Builds A Strong Financial Foundation
I often hear investment experts advising others to ‘put their financial house in order.’ However, without an adequate foundation, the most elaborate and costly “house” will crumble to the ground. The foundation for any financial plan is insurance. The most basic types of insurance protection needed for your financial foundation are liability insurance, disability insurance, life insurance (if you have dependents) and perhaps the most fundamental protection of all, health insurance.
There have been a number of changes in both the health insurance marketplace and America’s workplaces recently that should have every one of us reevaluating our health insurance protection. Below are several health insurance scenarios and suggestions on how to get the best value for your health insurance premium dollar.
Your employer provides health insurance
If you are in this category, count yourself lucky as more and more employers have cut back on this key employee benefit. If your employer pays most or all the premiums you are even luckier. Most employers pay a portion of the health insurance premium, and often pay a higher portion on the employee than on the family. Generally, group health insurance is better than individual health insurance because, among other differences, it offers maternity coverage to you and your spouse. However, I come across people every month who are paying a family rate for coverage that only covers their spouse and/or just one child. In small families it sometimes makes financial sense to have an individual policy on the spouse and/or children. The potential premium savings can be dramatic. When comparing plans, make sure you compare not just the premiums, but also the coverage and the tax benefits from employer sponsored Cafeteria Plans (Section 125 plans). If you chose individual health insurance for your spouse and/or your children you have a chance to review your decision each year to make sure that it still makes sense…it’s called “open enrollment.” Open Enrollment which occurs annually allows you to bring your spouse and/or child(ren) back onto your group health insurance. Consider this option if you have one or more family members that develop a health condition that could prove costly on your less comprehensive individual insurance.
You purchase your own individual or family insurance
If you purchase your own insurance I generally recommend reviewing your protection every two years. If you haven’t heard about Health Savings Account Qualified Health Insurance Policies you should look at this tax advantaged options. The Health Savings Account plans offer tax advantages similar to an Individual Retirement Account (IRA), but with your health care dollars. An important thing to remember is to purchase your health insurance as if it will be the last health insurance you will ever buy. If you become ill or hurt you may not be able to purchase another policy because of the company’s underwriting requirements. For this reason, you should choose a company that pays its claims, is financially stable, and has a long track record in your state. An Independent Agent that represents multiple companies will be able to help you pick the company most appropriate for your situation.
You find yourself between jobs and without health insurance
In most cases you will have the option of continuing your coverage with your former employer for 9 to 18 months, or even longer depending on current federal and/or state legislative action. You should elect this coverage until you secure another health insurance policy. Depending on the insurance company you will either pay your old employer or the insurance company each month for your health insurance protection. The premiums you pay will most likely be an eye opening experience because you will be paying both the employee’s premium and the premium that was previously paid by your former employer.
You are or will soon be eligible for Medicare
Medicare is great coverage for what you spend on it, but it does have gaps. If you want more protection you can buy a Medicare Supplement policy. You can purchase a Medicare Supplement policy during the open enrollment period without proving insurability or later by going through the underwriting process. The open enrollment period is generally the six months immediately after you the date you are first eligible for Medicare, but there are some catches so discuss this with your insurance advisor. It is unlikely that you will switch Medicare Supplement policies so pick a company that is financially stable, has a long track record in the state, and uses a local agent that will be around to help you when you have a claims problem. In addition to Medicare Supplement policies, there are now a number of Medicare Health Maintenance Organizations (HMO’s). These plans offer a tremendous amount of protection for the money, but they also limit your choice of doctors and hospitals and you may be out of luck if the company closes the program down. Discuss these options with your insurance advisor to determine which plan best suits your needs. A special note on the Medicare Part D Prescription Drug plans: If you purchase this protection, think of it as a “generic” prescription plan with lots of holes in it and you will be much happier with the results.
You own a business
If you own a business with employees, your situation has the most flexibility of all. Generally, if you have fewer than fifty employees, you can select any insurance company offering plans in your area. The company must accept your group, regardless of health conditions. If you’ve been sticking with your current health insurance company because you didn’t think any others would write your group, think again, then call your insurance agent. Make sure you use an agent that offers plans for more than one company. You’ve got a business to run, let your agent do the shopping for you. Additionally, I recommend that you review your coverage with your insurance advisor annually. Another way to save money is by offering a Cafeteria Plan. It’s estimated that by offering a “Full-Flex” Cafeteria Plan to your employees you can save an average of $300 in payroll taxes per employee annually.
Additional ways to save
Here’s some general advice that can help you save money regardless of your individual situation.
- Use your employer’s Cafeteria Plan. This plan, also called a Section 125 Plan can let you pay your portion of the health insurance premiums pretax. Cafeteria plans can also allow you to pay for deductibles, co-payments, dental care, eyeglasses and even daycare or eldercare before taxes. If your employer doesn’t offer a plan, ask him or her to consider offering one.
- Stay in network. Most insurance plans now have a list of preferred providers. These doctors and hospitals have agreed to tremendous discounts to get you in their door. Plans generally provide more and better coverage if you stay in network. Some plans pay no benefits if you go out of network.
- If you have prescription drug coverage, make sure your doctor has a copy of your insurance company’s formulary list. This list, which varies from company to company and even plan to plan, specifies what drugs are generic, preferred, non-preferred and not covered.
- Before having any outpatient procedure or surgery, make sure that you or your doctor’s office has followed the precertification rules. If in doubt about this, most health insurance cards have a precertification telephone number printed on them.
- If your plan requires you to go to your primary care physician to obtain a referral to a specialist, do so. Skipping this step can void your coverage for that specialist visit.
- Use the Emergency Room wisely. Most insurance plans encourage you to get as many services performed as possible in the doctor’s office by adding an Emergency Room “co-payment” (another word for “penalty” in this case) of $50 or $100 for using the Emergency Room. Try an Urgent Care Center instead as long as it’s not a true medical emergency.
Listed above is advice on how to get the most value for your premium and health care dollars. These scenarios are representative, but every situation is unique and you need to enlist the help of your trusted advisors when making health insurance decisions. Health insurance legislation varies from state to state and the laws on both the state and national level are currently undergoing dramatic changes. The above recommendations and rules of thumb are based primarily on the laws of Kansas and Missouri and may vary slightly in your state. Talk with your insurance advisor, your tax advisor and the Human Resources professional at your employer. These three professionals can provide you with the guidance you need to build the health insurance foundation for your financial plan.
Risk Management Strategies
Volumes have been written about risk management, but it all comes down to four simple options and the thought you put into implements them. When faced with risk you can AVOID it, MITIGATE it, RETAIN it, or TRANSFER it.
Avoidance involves electing not to accept the risk.
- For example, if you are no longer comfortable with the additional risk you created by buying a trampoline, avoid this risk by giving it away to your sister-in-law.
Mitigation involves taking steps to reduce the likelihood or severity of a loss.
- Expanding on the trampoline example above, you have now decided to keep the trampoline. However, you have decided to take a few actions to reduce the chances someone will use it without your permission and do a few things to make it a safer toy.
- First, you put a lock on your back gate limiting access to the trampoline (reducing the likelihood of a loss). Then, you spend a few thousand dollars buying padded mats and spreading them around the trampoline (reducing the severity of a loss).
Retention of risk is accepting the chance of a loss.
- If you do not insure your car, then you have decided to retain the risk and accept all the consequences of the loss. A more prudent use of retention is the deductible on most property policies.
Transfer of risk takes place through the use of contracts.
- A hold harmless agreement is a contract stating that one party will not sue another.
- However, the most common form of risk transfer is an insurance policy. Insurance policies are contracts where one party (the insurer) assumes the risks of another (the insured) in return fora ‘premium’ payment.
A few words of caution on risk transfer through and insurance policy.
- Virtually all insurance policies have coverage limits (the insurance company’s version of Retention and Mitigation) so make sure that you purchase limits that are appropriate to your situation.
- An insurance agent who represents more than one insurance company or a professional Risk Manager are in the best position to advise you on what limits are appropriate for your situation.
By using a little common sense and putting thought into which risks and how much risk you are willing to accept you can better protect yourself, your family, or your business from many of the perils that life throws at you. Properly applied, these techniques can even help you save money on your insurance.
