Buying health insurance for your small company can be a nightmare -- ask anyone who has done it recently. Not only are policies hard to understand -- let alone compare -- but small employers are under increasing pressure in a tight labor market to provide health benefits. (See "Doc, I've Got this Pain. It Started when I Went to Buy Health Insurance," Business Week frontier Online, Aug. 27, 1999.) And premiums are projected to rise over the next few years. Make an ill-informed choice, and you or your employees could be stuck with inadequate, expensive coverage.

Online health-insurance brokers, a recent arrival to the health-insurance scene, claim to ease the buying process by displaying information about the policies on the Web and offering online signups. Few offer policies for all states, however. (Most serve individuals, but they're starting to offer policies for small companies. See "Small Biz Health Insurance," Business Week frontier Online, June 18, 1999.) The Web may be a great place to buy airline tickets or books, but small-group health insurance? Should entrepreneurs dispense with the human broker? Business Week Online's Jeremy Quittner asked Dallas Salisbury, chief executive of the Employee Benefit Research Institute, a nonprofit organization based in Washington, D.C., about the pros and cons of online health-policy purchasing. An edited transcript of their conversation follows.

Q: Do you think the arrival of online health-insurance sales is a positive development?
A: I will be surprised if it proves to be a highly successful business model on a stand-alone basis... The key issue is the ability for the individual to evaluate what is being offered. Until there is the ability to ask questions, and get answers -- other than what I'll describe as legal language from a descriptive document -- it is going to be a very tough process. For example, you have a lot of Web sites that allow you to get health-insurance quotes or term life-insurance quotes, and they tell you nothing about the policy. You have no idea what all the technical details of the policy are because they don't put it on the Web site. They will let you get quotes from 12 different companies, but unless you can dig underneath and find out why they are offering 12 different prices...you would not be wise to make a purchasing decision.

Q: So essentially you can't do away with the human aspect? You need to be able to ask questions directly about things that are not clear?
A: Correct. Even when it is clear, you need to be able to say I definitely want this covered, or I want this feature. Most small businesses don't just buy a specific package. They generally will specify [what they want], and then the companies will go back and forth. You are basically...trying to figure out how the [insurance] company will react in specific situations...and that is a relatively interactive process, whether that is done through E-mail, conferences, phone calls, or an interactive Web site where it takes two days [to get a response]. Even with a broker, it will take two days before you get the answers back.

Q: Why is it then that people think there is a viable business model in these online services?
A: It can be a very effective resource tool. The ability to find information and respond to a customer is essentially much, much faster. But someone will have to be there to answer questions. Only an uninformed buyer -- who will end up with buyer's remorse -- [would buy] off an Internet site without...feeling like they needed to ask questions. [But] instead of spending 20 minutes on the phone explaining to someone the basics, the individual can get all of that information by looking at material on your Web site. Then, if they are still interested, [the site] can have a method of responding to specific questions.

A human broker does not in any way shape or form assure that you will not have problems, because generally the broker is representing the health insurer or the organization. [He or she] is not representing the individual business.

Q:What are some of the essential questions that small businesses should ask?
A: 1) What are the circumstances under which the policy can be canceled?
2) To what degree will...individuals who work for me be excluded from different levels of coverage?
3) What are the circumstances under which [people] can just go and get the medical care, vs. making phone calls and having to ask permission?
4) How much freedom do the individuals have to select their physicians and their hospitals?
5) Will the premium be an experience-rated premium based on your group, or will you be given the benefit of a community rate?

Q: Any other advice you might have for entrepreneurs trying to negotiate buying health-insurance policies for their businesses, whether online or off?
A: [People] can go to Web sites like the one at the Labor Dept., which has brochures about the types of questions you need to ask. There is a Web site for the Agency for Health Care Policy & Research that has an extraordinarily extensive guide to the purchase of health insurance for individuals and businesses.

Try to take advantage of organizations like the National Federation of Independent Business or the U.S. Chamber of Commerce...that frequently have purchasing arrangements in place. They...[use] government Web sites like the Labor Dept.'s to help you know what types of questions you should be asking.

Just be thorough. Your life might depend on it -- your life, your family's life, and your employees' lives.

To: STAFF & BENEFITS