What Is Business Health Insurance?

In the United States, the majority of health insurance administration is conducted by privately-owned third party businesses, known as HMOs or PPOs. Health insurance plans are often bought through a business health insurance program – where a business allows its employees to buy insurance by setting aside a portion of their weekly or monthly pay (and occasionally is given as a perk).

Business health insurance is pervasive because health insurance companies are often unwilling to insure individuals; this means that they must purchase it through a business. This is in part because it takes longer to negotiate individual contracts, but it also has to do with adverse selection – or the idea that individuals who are likely to need health insurance are the ones most likely to seek it out (leading to inflated costs and statistical model failures). In contrast, if the insurance company sells a plan to a firm, it knows the average composition of the firm in terms of demographics, which means it can more reliably estimate the total cost of coverage.

This probably isn't a whole lot of consolation if you recently quit your job or if you are self-employed; however, there is some good news: the US Congress passed the COBRA act, which gives benefits to people who are self-employed -- one of which is to retain their previous business health insurance plan with their insurance company.

In contrast, if you are looking to start a business health insurance program for your own workers, you will want to seek out an HMO or PPO to get insurance quotes. They may grill you for demographic information, estimates, etc. -- but if you work through a number of companies simultaneously, you should be able to bargain the price of your business health insurance to a reasonable level.