Free-Market Health Insurance Flourishes Online

Published December 1, 2001

Small businesses are the perfect online insurance customer: wired and Internet- savvy. But only recently have 20 million American small businesses gotten the online attention they deserve, with several new Web sites offering online quotes and applications for small-group health insurance.

Some sites act as brokers, while others put you in touch with a broker in your area. Site features run the gamut, from bare-bones quoting services offering no insurance advice, to sites that bill themselves as “benefit portals” and provide reams of small-business benefits advice.

“Our sweet spot is around the 20-person company,” says Billy Dukes, marketing director at the benefits site, with a home page that states it provides “a one-stop solution for the employee benefits and human resource management needs of small businesses.”

“They’re big enough to where they’re having to deal with the issues of employee management and benefits, but small enough that they don’t have one person dedicated to human resources decision- making. We try to create the knowledge and tools that can help them make a better insurance decision,” Dukes says.

Making it Work

At health insurance sites, the small employer can obtain an aggregation of group health quotes. He or she can select quotes based on deductibles and other plan features before ever contacting a broker.

Buying a health plan online, however, doesn’t always offer a better deal on premiums, because of strict state regulations and mandates impacting premium levels. And it’s hardly a miracle of one-stop shopping.

While consumers can buy car insurance online within minutes, small businesses confront an online application process that requires the same amount of work as visiting a broker in person. When buying a health plan online, the customer may have to interact with a broker before purchasing the final product.

Obtaining a price quote, however, is fairly straightforward. The quote is based on basic company and employee information.

First, the prospective buyer must fill out his or her name and the company name, the company’s address, and its line of business—either with a Standard Industry Classification (SIC) code, or with a descriptive keyword. The quote process also requires the user to indicate how many employees will be covered.

Next is an employee census: name, gender, and age of each employee. Some sites ask for specific birth dates, while others ask just for ages. For each employee, the user must indicate whether a spouse or children will be covered under the plan.

The next step allows the user to outline plan requirements: Maternity coverage? Dental insurance? Deductibles for hospital stays? These add-ons increase the cost. Also know how much of the premium will be paid by the employer and how much by the employees.

That’s all it takes to get a preliminary rate quote. The user will then be asked how to compare the plans that meet the criteria specified: by price, deductible, or plan features. What happens next depends on the site, and whether it acts as a broker or refers the user to a local broker.

Online Brokers and Referrals

Sites such as eHealthInsurance and Quotesmith provide instant quotes on various health plans. The user can move from the quote to the application process by sending an e-mailed request to the site. From there, the user goes through an application process similar to what takes place in the office of an offline agent, supplying health histories of employees and any covered family members, and providing wage and tax forms in order to receive a final premium rate.

Other sites, including BenefitMall and, will refer users to a broker. BenefitMall refers to a local broker, while Firstdoor allows brokers to bid for business in its online “marketplace.”

“We’re agnostic when it comes to whether a small business buys insurance from a carrier directly, from our marketplace, or through traditional channels,” says Dukes of Firstdoor.

“Our goal is to help businesses make a better buying decision. They can take our information to their broker and reaffirm what we’ve told them.”

Too Soon to Tell?

The California HealthCare Foundation’s (CHCF) recent report, Health Insurance: Purchasing and Privacy Online for Individuals and Small Groups, offers a snapshot of site features and performance for three online health insurance sites: eHealthInsurance, HealthAxis, and Quotesmith.

The report warns it may be too early to draw conclusions about such a young marketplace, and raises issues of concern to consumers using the sites. CHCF found buying health insurance online means being faced with a limited range of product choices. “Some sites offer a full range of products (e.g., HMO, PPO) for each health plan they offer; others are more restrictive in the product choices they present,” the study notes.

And so far, there’s no apples-to-apples way to compare quoted health plans, or even to make clear preferences for deductibles, co-payments, and other important plan features.

Before a user starts the application process, he or she should be aware of what options can legally be offered in that state. Pickings can be slim, depending on location. For instance, consumers in California, the largest insurance market in the country, have many more health plan options than do Alaska residents, who might have only one or two choices.

Privacy Online

The CHCF report’s most intriguing question is that of consumer privacy in online health plan applications. To obtain a quote, a user must enter health data for all the firm’s employees. That’s important data . . . and it represents a potential gold mine for the site.

Fortunately, the CHCF study found that although privacy policies could be better explained at the sites in question, there is no evidence that private information is anything but confidential.

Where does online information go? “That can be made more transparent, though it’s not clear that any more privacy risk exists online than through traditional channels,” says Marian Mulkey, program director at CHCF.

Overall, online health insurance sites can be a benefit to independent-minded small businesses and individuals, Mulkey says. “For some people, it’s a personal preference. Some people prefer to shop for insurance on their own time frame. Online, you can shop on your own,” Mulkey says.

Heather Williams writes for, the Consumer Insurance Guide.