Starting a health insurance company can be very rewarding if done correctly. There are many steps involved in the process, and it’s important to make sure you have everything covered.
Here are the steps you can take to get started on building your very own health insurance company.
10 Steps to Launching a New Health Insurance Company
1. Choose Your Type of Health Insurance Company
The first step in launching a health insurance company is to identify the type of health insurance business you want to launch. You might choose from the following types among others:
Provider-owned: A health insurance company that is owned by a hospital or group of providers.
HMO (health maintenance organization): A type of managed care plan that offers comprehensive coverage and restricts members to using only the doctors, hospitals, and other providers that belong to the HMO network.
PPO (preferred provider organization): A type of managed care plan that offers more flexibility than an HMO because members can see out-of-network providers, but they will have to pay more for those services.
Indemnity plan: A type of health insurance that reimburses policyholders for medical expenses incurred during a covered period, up to the limit of the policy.
Point-of-service (POS) plan: A type of managed care plan that offers members the flexibility to see in-network or out-of-network providers, but they will have to pay more for services provided by out-of-network providers.
High deductible health plan: A type of health insurance that has a high deductible, which is the amount you have to pay for covered medical expenses before your insurance company starts to pay.
2. Name Your Health Insurance Company
Give your health insurance company an identity so people will think of it as a well-known and respected brand. You can take the name of your health insurance company from your industry, focus on a geographical location, or use your own name among other options.
The main goal for naming your health insurance company is to make it sound appealing and trustworthy so that potential customers will want to do business with you.
3. Determine Your Health Insurance Company Business Model
There are several possible types of business models for a health insurance company including:
- Online health insurance companies that sell health insurance policies directly to consumers
- Brokerage health insurance companies that work with other health insurance companies to find the best policies for their clients
- Third-party administrator (TPA) health insurance companies that provide administrative services for self-insured employers or health plans
No matter which model you choose, make sure that it aligns with your business goals and the products and services you offer.
Read more about choosing the right business model for your health insurance company.
4. Choose a Legal Form for Your Business
By incorporating your health insurance company, you will limit your liability. You can incorporate as a Limited Liability Company (LLC), a C Corporation (C-Corp), or an S Corporation (S-Corp). Or you can operate as a sole proprietorship.
The business structure you choose for your health insurance company will determine the amount of taxes you pay and which state or federal tax forms you need to file.
5. Write a Health Insurance Company Business Plan
All health insurance company business owners should develop a business plan.
A business plan is a document that outlines the goals, strategies, and operations of a business. It can be used to secure funding from investors or lenders, as well as to guide the day-to-day operations of the business. The business plan should include information on the company’s products or services, market analysis, financial projections, and management team among other things.
When developing your health insurance company business plan and strategy, you should think about the following questions your customers might have:
- What is the process for enrolling in a health insurance plan?
- What are the different types of health insurance plans available?
- What is the difference between a copay and coinsurance?
- How does my premium get calculated?
- How do I know if a particular doctor or hospital is in my network?
- Can I see any doctor I want or do I have to go to a specific hospital?
- What is the process for filing a claim?
- What are my appeals rights if my claim is denied?
- What is the annual open enrollment period?
- What is a health insurance exchange?
- What is a subsidy?
- What is the difference between a grandfathered health plan and an ACA-compliant health plan?
- What is the difference between a Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO)?
- What is a High Deductible Health Plan (HDHP)?
- What is a Health Savings Account (HSA)?
- What is a Flexible Spending Account (FSA)?
Answering these types of questions will help you develop a business plan and strategy that meets the needs of your target customers.
Read our article about how to write a health insurance company business plan.
6. Apply for the Necessary Permits and Licenses
There may be required licenses and permits you need to obtain before launching your health insurance company.
For example, you may need to obtain a life and health insurance license if you want to sell health insurance plans in your state.
You must also register your health insurance company as a legal entity with the state where you plan to do business. You can simply file an online form through your Secretary of State website.
Registering with the federal government is also essential so you can properly pay taxes for your business. You will also need an Employer Identification Number (EIN), which you can apply for at the IRS website, if you plan to hire employees.
7. Determine Your Budget & Apply for Funding as Needed
In developing your health insurance company business plan, you will figure out how much funding you need to start and grow your business.
If you have your own funds to invest in your health insurance company, you may consider taking advantage of that. In addition to your personal funds, other forms of potential funding for your health insurance company include traditional bank loans, SBA loans, credit cards, angel investors and family and friends.
Read our article about the costs associated with starting a health insurance company to help you determine if funding is needed.
Read our article about how to fund your health insurance company.
8. Get the Technology & Software Needed to Run Your Business Efficiently
When you start your health insurance company, it’s essential to have the right technology in place to maximize efficiency. You definitely need a computer with Internet access, and accounting software for tracking expenses and revenues.
You may also want to invest in a customer relationship management (CRM) system to help manage your customers, as well as a human resources (HR) system if you plan to hire employees.
In addition, if you plan to sell health insurance plans online, you will need an e-commerce platform to do so.
9. Market Your Health Insurance Company to Potential Clients
Before you start selling your products and services, you have to let the world know you exist. The first step is to create a website so people can learn more about your products and services and how they benefit them.
After you launch your website, start promoting it through social media channels like Facebook, LinkedIn and Twitter. Also consider networking with other people in the health insurance industry through social media and blogs so they can help share your business.
You also need to start gathering the materials needed to execute on your promotions strategy, which is your strategy for attracting new customers. Health insurance businesses should consider the following promotional strategies for which you should start getting prepared:
- Sponsoring community events or health fairs
- Offering free health insurance consultations
- Distributing promotional materials in local doctor’s offices and hospitals
- Running online or print ads
- Sponsoring a charity event or fundraiser
- Creating a blog and writing articles about health insurance topics
- Creating informative videos about health insurance products and services
- Speaking at local business events or workshops
- Exhibiting at local trade shows or conventions
Read our article about how to market your health insurance company for more tips.
10. Get New Clients & Grow Your Business
When you promote your products and services, you’ll start to get interest from potential clients.
Make sure you’re ready to serve these clients. Also, be sure to establish systems to ensure consistency and reduce costs. And be sure to find and train the right people to help you grow your health insurance company.
Read our article about how to effectively grow your health insurance company to learn more.
Starting a Health Insurance Company FAQs
What is the Best Business Structure For an Insurance Company?
The best business structure for an insurance company depends on the type of work they do and their growth plans. An LLC or corporation is a good option for small businesses that hope to expand and grow into larger ventures, while a sole proprietorship may be a good option for small businesses that don't expect to expand beyond a handful of employees.
Is a Sole Proprietorship or LLC Better for an Insurance Company?
Being a sole proprietor means that you are self-employed and own your insurance company outright, so you are held responsible for all its debts and liabilities. All business income is also taxed as income on your personal tax return, including self-employment taxes.
On the other hand, an LLC offers limited personal liability protection for its members, and all income from the LLC is typically taxed at a lower rate than personal income.
Is an Insurance Company LLC or S Corp Better?
Both LLCs and S corporations are good options for insurance companies who want the limited liability protection of a corporation, with favorable tax treatment, and while still having access to outside funding.
Does My Insurance Company Need an EIN?
An EIN, or Employer Identification Number, is a unique nine-digit number that is assigned to businesses by the Internal Revenue Service (IRS). It is used to identify businesses for tax purposes.
An insurance company does not need an EIN unless they have employees. In that case, the EIN would be used to file employment taxes. This applies to both LLCs and corporations.
Do You Need a Business Bank Account as a Sole Proprietor?
A sole proprietor does not need to have a separate business bank account, as all business income and expenses are considered part of the owner's personal assets. However, it is a good idea to segregate business and personal assets to make tracking and bookkeeping easier.
An LLC or corporation must have its own bank account, and all income and expenses should be tracked and filed separately.
Summary
Starting a health insurance company can be a rewarding and profitable business venture. By following these simple tips, you’ll be well on your way to opening and running a successful health insurance agency.