What is the average cost of health insurance for a business?

Answer 1

There is no "average cost" for a variety of reasons:

1. An insurance premium is the amount of money that is paid to an insurer for coverage under an insurance policy.

2. Premiums derive from "rates". Roughly defined, a rate is the cost per unit of insurance (for example, per $100 of coverage).

3. Rates are determined based upon many factors. Some include the geographic location of the insurer, the location of the people or businesses to be insured, the kinds of risks that will be insured, and other factors. States regulate insurance rates to make sure that they are neither "excessive, inadequate, nor unfairly discriminatory". Therefore, depending upon the state in which insurance is transacted, rates, and therefore premiums, can differ.

4. There exist numerous kinds of health insurance. They differ in large part by the "richness" of the benefits provided. Stated otherwise, they may differ in the amount and breadth of benefits provided. A "richer" policy will be more costly than one providing a more narrow range of benefits.

5. There will also be a difference in cost depending upon whether the health policy is an "indemnity" policy or some variety of "managed care" contract.

An indemnity policy basically pays covered health expenses that are submitted by the health care provider. Payment is subject to the terms, conditions and limitations of the policy, and usually provide for co-payments and deductibles. A co-payment is that percentage of a covered expense for which the insured is responsible for paying. An example would be an "80/20" policy whereby the insurer pays 80% of the cost and the insured pays 20%. A deductible is the amount that the insured must pay toward the covered expense before there is any responsibility by the insurer to pay. Therefore, the insurance premium can be reduced by increasing the co-payment and the deductible, as then, the insurer is assuming less risk.

Managed care is perhaps best typified by a health maintenance organization (HMO), although there are variations. An HMO is called "managed care" because it provides a bundle of services in return for a monthly fee. It stresses preventive care on the theory that if people stay well and if illness is caught early, costs can be controlled.

Medical care is managed by a primary care physician who is selected by the member when he/she joins the HMO. That physician provides the routine medical care. If a specialist is needed, a referral usually must be obtained from the primary care doctor. In that way, the HMO maintains some control over expenditures. There may also be limitations on the identity of the specialists who may be seen.

Frequently, HMOs are characterized as providing less choice for the patient and necessarily, inferior care. While it is true that the patient must get more or different permissions than in an indemnity plan, the care can be, and usually is, equally good. However, like everything, some are better than others. Because of the fundamental differences in the health care delivery models between indemnity and managed care arrangements, managed care is frequently less costly.