Why Does Business Medical Insurance Cost So Much

It's a simple fact – small businesses pay too much for the health insurance that they buy for their employees. And it isn't by a small amount, either. They end up paying 30% more for the insurance they provide than they should. Why is it that business medical insurance is so difficult to buy?

The first thing that you notice about small business medical insurance is that businesses constantly change providers. Which is rather strange, because it's a very closely competed market. It isn't likely that you could go from one provider to the next and find huge savings there.

The reason they do this should be very familiar to anyone who has had trouble working out which cell phone plan to buy. Economists actually have a term for it – they call it "search friction". The plans set out for you are so complicated that you couldn't really make much sense of them. And so, you just try one or the other, with no real sense of purpose.

The insurance businesses do this on purpose. They know that if they do this, they can get away with tricking you into buying plans that are too expensive for you. Of course, they will only be able to sell a few policies this way, because many small businesses just couldn't afford these prices. The insurance companies don't care though, because they now run a small business selling high-margin insurance policies. They get their profits, and they are satisfied.

It just means that small businesses end up paying too much for their business medical insurance. It also means that small businesses end up getting poor quality insurance policies. The insurance companies know pretty well by now that they can't count on keeping a client for long. And so, they have no real incentive to think of ways to help prevent illnesses in their clientele in the first place.

What could they do to help with diseasde prevention, you ask? Well, they could start a wellness program. They could try a disease management program. These are long-term programs. Why would even try to start such a thing now, when they know that no small business stays with an insurer for longer than a year?

If you are a small business owner, what exactly should you do here? How should you buy your business medical insurance without overpaying?

Well, things should get better once the insurance reform kicks in. When that happens, the states get power over how these insurance plans are formulated and set up. There should be a lot less confusion and a lot more clarity.