Budgeting and Cash Flow

Before you start shopping, you should figure out how much money you’re willing and able to spend for group coverage. You should estimate this in a couple different ways:

• Percentage of payroll. Calculate an amount as a percentage of your total monthly and annual payroll that you could spend on group coverage.
• Per employee per month. Calculate how much you could spend per employee per month. Come up with a bottom-line maximum figure without worrying about any variables such as employee contributions or dependent coverage. Based on your budget, you’ll figure out those variables later.

Cash flow issues are also important to consider when sponsoring group medical coverage. Keep the following cash flow issues in mind:

• Monthly premium commitment. Most insurers require you to pay the monthly premium by the first of the coverage month. This means you would pay for April coverage on April 1, May coverage on May 1, etc. If you are buying coverage for the first time or replacing existing coverage, the insurer will likely ask for a month’s premium in advance.
• Grace period. Most insurers offer a 30-day grace period for paying premiums. So, even if you pay a few days late, your group insurance plan will most likely not be cancelled. You may want to inquire about your insurer’s grace period and notification policy regarding cancellation.
• Cancellation/reinstatement. If you are regularly late with your payments, your insurer has the right to cancel your group insurance policy. Most insurers have procedures for reinstating policies that have been cancelled due to insufficient payment. You may want to ask about your insurer’s rules regarding cancellation and reinstatement.
• Premium increases. Most premiums are renewed annually, which means that the insurer can adjust the premium once a year. Some plans, though, allow the insurer to increase premiums every six months. By law, the insurer must give you at least a 30-day notice of any proposed increase.