Employers should steer clear of hospital indemnity policies and dread disease policies. Hospital indemnity policies pay a certain amount for each day the employee is in the hospital, usually at a level insufficient to cover the typical daily cost of a hospital stay. Dread disease policies cover particular illnesses, but tend to be far more expensive than is warranted by the likelihood of contracting one of these diseases. They also are wholly inadequate to meet the needs for general coverage.

Reimbursement. Similarly, checking reimbursement levels for various procedures can reveal whether coverage is far less than the average hospital or doctor charge. Employees undergoing these procedures will be left owing substantial sums if this is the case. If in doubt, check with a physician to find out whether certain coverage amounts are reasonable.

Restrictions. Are there restrictions that do not fit with the business's operations? For example, one familiar restriction among HMOs is drastically reduced coverage or no coverage if an employee has to seek medical or hospital care in another state. If your business's employees travel extensively, such a policy would be inappropriate.

Investigating the Insurer

Investigating the security of an insurance firm, hundreds of which have gone out of business in the past five years, is only the start in checking out an insurer. It can be done quickly and easily by examining the ratings books published by one of five agencies - A.M. Best, Duff & Phelps, Moody's, Standard & Poor's, and Weiss Research. Your business should examine an insurer's rating both over time and across services, since insurers may be strong in some areas and weak in others.

An equally important area is the insurer's willingness to pay claims and, if it is an HMO, its willingness to allow access to specialists and services like mental health counseling. One HMO was fined heavily because of its practice of requiring a faxed authorization before allowing inpatient mental health treatment, but providing only one dedicated fax machine for this service for the entire state, and keeping the machine off the hook. Unfortunately, these criteria are much harder to assess than financial health, since there are no ratings available. Brokers may have the best knowledge about the claims history of an insurer. In addition, each state has a department of insurance which can provide information on the number of complaints lodged against a particular insurance company.