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8.3.99  
Haunted by a Health-Coverage Choice
Even if you were shortsighted, you needn't get stuck with a bad policy

Q: My small company didn't sign up for prescription coverage on our employee health plan. When we later realized we needed it, we couldn't add it until the one-year renewal came up, so we had an eight-month period with no prescription coverage that turned into a strain on employee morale. What should we have done differently? --I.W., New York, N.Y.

A: Sounds like you made a cost-cutting decision that came back to haunt you. Most employee health plans these days include prescription drug cards and a small employee co-payment as a standard feature of the overall package. Some states mandate prescription coverage, in fact. But experts say that about 20% of health insurance plans come with riders so employers in certain states can opt in or out of such items as prescriptions, dental coverage, and vision care, saving 7% to 10% on each option.

Unfortunately, medications are very expensive, and employees are no longer accustomed to having to pay for them out-of-pocket. As you may have discovered, companies with health plans that are not up to par wind up with employees who are filling out job applications behind the scenes and going elsewhere. Since health coverage is the core of a good benefits package, experts recommend you spend a little more and keep your workforce happy.

You didn't need to wait until your insurance carrier's enrollment window opened in order to offer prescription coverage to your employees, however. Allison Klimerman, spokesperson for the New York State Insurance Dept., says that you could have canceled the plan you were on and simply purchased insurance from a different carrier, picking up the prescription coverage at that time -- you're not locked in for a full year. If your rates were better with the first company, you might have gotten back on their policy -- adding drug coverage this time -- within six months to one year. The employer can cancel the coverage, usually with about 30 days' notice. The only time you must stay with an insurance plan for the full term of the coverage is if your insurance is partially self-funded or you are involved in an alternate funding plan authorized under ERISA.

"Your agent should have helped you shop around, find a new carrier, and elect a plan with drug coverage. You probably didn't get the time and attention you should have," says Larry Salovin, president of L&J Insurance Co. in Jupiter, Fla. Salovin, who specializes in small-business coverage, says that unless small companies choose a specialty agent, they frequently get short shrift from their insurance representatives.

Micro-businesses must be particularly diligent in locating a broker, says Kathy Hope, owner of Los Angeles-based Insurance Advisors. "If you're very small -- under five employees, say -- be prepared to have a tough time getting coverage because it's not cost-effective for large companies to insure you. If you go to a big broker, they'll tell you they can't find insurance. But a smaller brokerage, like mine, will work like crazy to find you coverage because we want the business."

A few things to consider when picking an employee health plan: Most plans are priced within a 5%-to-15% range of each other, Salovin says. "More important than price is the quality of the coverage, the stability of the insurer, and the accessibility of customer service. I like to show my clients four or five plans and explain the pros and cons of each," he says. For instance, some policies do not pay for certain drugs, which may prove to be a major hardship for one or more of your employees. Other plans, for perhaps 10% over the standard price, offer "open access," meaning employees do not have to pick a primary-care physician and do not need a referral to see a specialist -- a major benefit for many people.

For more information on insurance laws -- which vary widely from state to state -- and employee coverage, visit the Web site of the National Association of Insurance Commissioners at www.naic.org. The New York State Insurance Dept.'s Web site is www.ins.state.ny.us. Salovin's Web site, www.lnjins.com, and Hope's site, www.healthbroker.com, offer definitions, FAQs, and information on insurance legislation.

Have a question about running your business? Ask our small-business experts. Send us an E-mail at editors@businessweekmail.com, or write to Smart Answers, BW Online, 46th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.

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