Business Owner's Manual

Insurance Issues

Workers' compensation and disability benefits are required by New York law, and many businesses offer other insurance benefits to employees as part of the compensation package. Business life and disability insurance are recommended for many small businesses. This section explains each type of coverage.

 

Required Insurance

Non-mandatory Insurance

Finding affordable health insurance is easier than you might think. Whether you are a small business owner, sole proprietor, or a working individual, there is a special New York City health insurance option designed especially for you. There is also a City resource to help you identify the available plans and to guide you through the enrollment process. As part of New York City's Human Resources Administration, the Office of Citywide Health Insurance Access (OCHIA) provides impartial guidance to working individuals and small businesses in need of affordable health insurance.
OCHIA programs (.pdf)

Most small businesses recognize the importance of medical insurance coverage for owners and key employees. As a business grows, a competitive program of benefits can help a company attract and retain employees.

In the past, smaller employers have found it difficult to purchase medical insurance coverage with benefits comparable to larger employers. Most states have legislated health insurance reform, making it easier for small companies. New York's "community rating" laws make it possible for firms with as few as two participants to purchase quality medical insurance for employees.

In general, an insurer must offer its plans to all employee groups, without regard to age, gender, occupation, or prior health history. Small groups may not be excluded from coverage due to any of these factors. Nor may they be charged a higher or lower rate than other groups for the same plans.

Medical insurance covers an employee and eligible dependents for expenses incurred because of illness or injury and pays for doctor and hospital bills, laboratory and X-ray facilities, and other medical costs. There are several types of coverage generally available:

• Traditional indemnity plans simply reimburse a participant for covered expenses. Reimbursement is usually subject to a deductible and coinsurance. As these plans have become increasingly expensive, their popularity has declined and employers have embraced managed care plans, which offer access to medical care while seeking to control cost.
  
  
• An HMO (Health Maintenance Organization) offers its members comprehensive coverage for treatment by participating hospitals, doctors, and other health care providers. All treatment must be referred within a network of participating providers, and treatment by providers outside of the network is generally not covered. Health care is coordinated by a primary care physician (PCP), sometimes called a gatekeeper, and usually a member can gain access to treatment by a specialist through a referral by the PCP. The out-of-pocket cost for most medical treatment is limited to a small co-payment, such as $10 or $20.
  
  
• Many HMOs now offer Point of Service (POS) plans, which allow members access to out-of-network providers, usually at a greater out-of-pocket cost to the patient. For out-of-network treatment, the patient is responsible for a deductible and coinsurance and is reimbursed for expenses based upon "reasonable and customary" allowances. Because these plans are based on an HMO contract, treatment by in-network specialists requires a referral from the primary care physician. A few HMOs now offer "non-gatekeeper" plans, which feature open access to in-network specialists (no referral necessary).
  
  
• Finally, a PPO, or Preferred Provider plan, is similar to a POS plan in that a member can chose between participating and non-participating providers. Because PPO plans are not based on HMO contracts, members generally have open access to in-network specialists without needing to obtain a referral from a PCP. PPO plans tend to be costlier than POS plans.

Small businesses can also obtain other insurance benefits for their employees on a group basis. These include dental insurance, long term disability, and group term life insurance. The benefits of purchasing coverage on a group basis include low cost and simplified underwriting.

 

Business Life and Disability Insurance

• Individual life insurance and disability insurance policies are issued on owners, partners, and key employees for a number of reasons. Generally, these policies protect creditors, partners, and family members from the financial impact resulting from the death of the insured, providing business continuity.
  
  

• Partnerships typically insure the lives of each partner as part of a buy-sell agreement so that the surviving partners can purchase a deceased partner's interest in the company.
  
  
• A disability policy can also be used to fund the purchase of a disabled partner's interest in the company.
  
  Note: Remember that a partnership ends on the death of a general partner. A new agreement is required each time to continue the business with fewer — or with new — partners. See Structuring a business.

 

The Family and Medical Leave Act (FMLA)

This is a relatively new law, which many employers do not fully understand. Information, forms, and the required notice are available from the Family & Medical Leave Act section of the U.S. Department of Labor Web site or by calling 1-800-959-FMLA.

Employers with 50 or more employees are required to allow an eligible employee to take up to 12 weeks of unpaid leave during a 12-month period for his/her own serious health condition, care of a spouse, child, or parent with a serious health condition, or the birth or adoption of a child. Leave may be taken as straight time, on a reduced schedule, or intermittently (for example, once a week).

The employer in most instances, can require the employee use paid leave (e.g. sick days and vacation time) as part of FMLA leave. Even Workers' Compensation and State Disability leaves can be counted against the employee's 12-week leave entitlement.

SOURCES:   Prepared with the assistance of the New York State Business Group