Health insurance is the benefit employees seek out the most, but it comes at quite an expense for employers. It’s understandable that you may be worried about the cost. This article will break down how much it costs to offer employees health insurance.
Once done reading, you’ll understand what you can expect to pay to cover your employees, and if offering this benefit is within your budget.
What Does It Cost To Offer Your Employees Health Insurance?
Health insurance costs can vary widely. There are a few factors that impact how much you pay for health insurance per employee, which we will discuss in detail in the next section.
On average, employer-sponsored health insurance in 2020 cost employers around $7,470 per year for single coverage, and around $21,342 per year for family coverage.
If you take into account contributions made by employees to their health insurance plans, those costs are reduced to $6,227 and $15,754 respectively.
It is, of course, up to you as an employer whether you cover the full amount or require employees to contribute to the cost.
Factors That Affect The Cost Of Offering Employees Health Insurance
Here is an in-depth breakdown of the factors that affect how much you pay for employees’ health insurance.
The average age of your employee group affects the health insurance premium. If your group is younger, you can expect to pay less to cover them.
The risk associated with covering a group in their 20s is much less than covering a group in their 40s or 50s. This is because older people are more likely to suffer from various ailments and illnesses.
However, it’s important to note that the increase rates can’t exceed a 3:1 ratio. This means the rate you pay for a 50-year-old employee can’t be more than 3 times the rate you pay for a 21-year-old employee.
The number of people in the group you’re covering can impact the amount you pay. This includes family members who will be covered too.
Smaller groups will cost more than larger groups. This is because the health risk is distributed among a larger group when you cover more people, which offsets the cost of the individuals within your group with a disproportionately high number of claims annually.
It also makes sense for insurers to offer you cheaper premiums for covering more people, because they obtain more customers through that practice. The cheaper premiums can be a deciding factor when you’re choosing between a few insurers. Therefore, the pricing is more competitive for large groups of employees.
Some states require employers to cover certain procedures by law. Insurance in these states will cost more, simply because there are more procedures that are covered.
For example, some states mandate benefits related to fertility and reproduction.
Accessing healthcare in some states is simply more expensive. Anything from a doctor’s appointment to a hospital admission costs more on average in these states, so insurance is naturally more expensive in these locations.
For example, health care is most expensive in South Dakota, West Virginia, and Florida so insurance premiums are higher. The western part of the US has the cheapest healthcare.
Healthcare inflation is a portion of your premium that is calculated based on the cost of healthcare services accessed by all members of the insurance scheme.
It is calculated by the insurer. They look at the total amount of claims in the previous year and how costly they were. This helps them determine what the new annual premiums will be.
Basically, medical conditions that require frequent or expensive medical attention will drive insurance premiums up.
The industry you operate in can impact insurance premiums. Your insurer may assign a risk factor to your group of employees based on the type of work they perform.
For example, if your employees are mostly office workers, their risk of obtaining an injury during working hours is quite low. Thus, their insurance premiums will be less. If they work in a factory, however, their insurance premiums will be higher because there’s a greater chance of them sustaining an injury.
The type of insurance you opt to cover for your employees impacts the price of the premiums. If you cover more, your premiums are higher. Similarly, if you cover less, your premiums are lower.
Insurers factor administrative costs into the price of your coverage each year. They need to ensure that they can pay their staff, set aside reserve funds, and operate their company.
This is only a small contributing factor to your premium, but it does affect your premium nonetheless.
Lastly, state laws can impact your insurance premiums. Federal or state laws dictate the minimum coverage an insurer must offer. So if these laws dictate that more coverage must be made available, your premiums are subject to change in line with those new benefits.
How Employers Can Lower The Costs of Employee Health Insurance
Here are some ways you can reduce the costs of your employee health insurance. By combining two or more of these strategies, you can reduce your health insurance cost by two to three digits per employee per year.
Limit Coverage To Employees
You have to cover your employee’s children up to the age of 26, but it is not required to cover their spouse.
It’s a common cost-cutting strategy for companies to not provide spouse coverage or implement a surcharge in order to cover a spouse who could access their own insurance through their employer.
Choose Managed Care
There are two types of managed care plans you can usually choose from:
- Health Managed Organization (HMO)
- Preferred Provider Organization (PPO)
HMO plans offer a lower premium than PPO plans but have a more restrictive provider network. All care will need to be managed via a primary care physician when using the HMO plan model. They will refer patients to specialists within a network of pre-approved providers.
When using the PPO model, patients will be given a list of preferred providers from which they can choose.
Encourage Employees Ages 65 And Up To Sign Up For Medicare
People of ages 65 and up qualify for Medicare medical coverage. When the older people in your employee group access this option, it reduces the average age of your employee group. This reduces your overall premium cost.
Negotiate Rates Through A Broker
Insurance rates are negotiable for large groups of people. This benefits the provider by allowing them to secure more clients in the long run. Speak to your broker about negotiating rates as low as possible.
If you’ve been with the same provider for a while and haven’t negotiated down before, your chance of getting a good price is much higher.
Offer Internal Wellness Programs
Internal wellness programs can lead to healthier employees, which can reduce your insurance premiums because the risk of covering them is lower.
An example of an internal wellness program that performs well is a gym membership benefit. You can offer incentives for those who actively participate, such as paid time off or extended lunch breaks. You can get creative here, but the idea is to improve the health of your employees in a way that directly affects your insurance premiums.
Reduced stress and weight loss can reduce your premiums as your employees’ health improves over time.
Provide Upgrade Options To Employees
You can offer a base health insurance and give employees the option to top-up according to their individual needs. This is done at their own expense so it drastically reduces your premiums.
Carefully Consider Various Plan Designs
There are a few ways you can save money by restructuring insurance plans. Increasing deductibles will lower your portion and put some of the financial responsibility of insurance on your employees.
You can also raise copayments for costly services like emergency room visits or limit the network employees can access to decrease premiums.
If your group of employees has relatively good health, you may consider self-insuring. This is only a smart choice if the value of your employee’s claims is below average.
Your insurance rates are underwritten based on the general health of your employees rather than the other factors listed above that impact traditional insurance premiums.
The immediate benefit is improved cash flow. But, it’s important to be aware of the risks attached to this option. If there is an unusually large claim by an employee, the employer will need to cover this. Thus, you run the risk of an unplanned financial impact.
Frequently Asked Questions
What is the difference between self-insured and fully-insured health plans?
Fully-insured health plans are the traditional model of health insurance paid for by employers. Self-insured plans are funded by the employer. Traditional plans cost more, which is why some employers look to self-funding as an option.
What are the rules for offering health insurance to employees?
Employers must provide affordable health insurance to 95% of their employees and children up until the month they turn 26 years old. There are penalties if this rule is ignored.
Must all companies inside the US offer health insurance?
There is no law mandating health insurance for employees. However, there are penalties if you have more than 50 employees and do not provide health coverage for them. This is enforced through the Affordable Care Act.
Offering employees health insurance is important in attracting talent, but can be costly. Enhance Health offers assistance in finding the most affordable plans your employees qualify for, ensuring a cost-effective solution for you.
The benefits for your employees include lower deductibles and copayments. Our licensed representatives will assist you in finding these affordable plans and help you choose the best option within your budget.