With rising premiums and an uncertain policy landscape, workers and employers alike struggle to find insurance they can afford. The quest for affordable healthcare often begins with selecting the right primary care physician (PCP). However, for those enrolled in HMO plans, this task is intertwined with the need to find a PCP within their network. Understanding the significance of network doctors and how to ensure your PCP is in-network is paramount in managing healthcare expenses and securing comprehensive coverage.
The average cost of Small Business Health Insurance for business owners
Business owners want to take care of their employees by providing health insurance that benefits their workers and their families. However, cost must be a consideration for owners who understand their bottom line makes all the difference in the financial health of their company. Actual cost depends of factors such as plan type and insurer selection (PPOs, for example, generally higher premiums than High Deductible major medical plans), location, and age distribution of plan participants.
According to a 2021 study published by the Kaiser Family Foundation (KFF), small firms (defined as businesses with 3 to 199 employees) offering health insurance to employees paid about the same as large employers (200 employees and more) did.
An average monthly premium of $651 for single coverage per covered worker in small firms.
An average monthly premium of $1,817 for family coverage per covered workers in small firms.
Why does the average cost of small business health insurance tend to be lower than that of individual coverage? This is, in part, due to risk pool advantage, which means that the larger the group, the more spread out the costs are to provide coverage for medical care. The Small Business Administration explains this benefit of group health insurance plans as follows: the larger the group of people, the more monthly payments there are coming in, and the more money the insurance company has for when one of the enrolled members needs care.
Key factors impacting Small Business Health Insurance costs
It is important to understand that the costs mentioned above are averages. What you end up paying for premiums may be influenced by at least three factors:
- The ages of the people in your group and where you’re located
- Your preference when it comes to out-of-pocket costs
- How you shop for coverage
- Your group plan costs may be affected by the age of the people who are going to be covered, and where you live.
Insurers set premiums by the ages and location of the employee group, as well as the specific plan features and coverage levels.
Under the Affordable Care Act, pre-existing medical conditions generally won’t affect your premiums, and no one can be turned down for coverage because of his or her medical history.
Breaking down Small Business Health Insurance costs
Like most individual plans, the cost of a small group health insurance plan usually comes with a number of different payments, such as deductibles, premiums, copayments, and other out-of-pocket costs.
Premiums
A premium is a regular payment, usually made once a month, that policyholders must pay every month to remain enrolled in health insurance. These payments are a fundamental component of health insurance, and understanding their significance can help individuals and families make informed decisions when choosing a health plan.
Imagine you’re shopping for health insurance, and you come across two plans: Plan A with a monthly premium of $300 and Plan B with a monthly premium of $500. At first glance, Plan A might seem like the more attractive option due to its lower monthly cost. However, it’s essential to delve deeper into the world of premiums to make an informed choice.
Let’s consider the case of the Adams family. They are a family of four, and both parents work full-time jobs. The Adams family has a choice to make when it comes to health insurance during their annual open enrollment period. They have two options:
- Plan X: This plan has a lower monthly premium of $350, but it comes with a higher deductible of $5,000. Once the deductible is met, the plan covers 80% of their medical expenses, and they are responsible for the remaining 20%.
- Plan Y: This plan has a higher monthly premium of $600, but it offers a lower deductible of $1,500. After the deductible is satisfied, the plan covers 90% of their medical costs, leaving them responsible for only 10%.
At first glance, the Adams family might be tempted to choose Plan X due to its lower monthly premium. However, a closer analysis reveals the following:
- In a typical year, the Adams family’s medical expenses, including doctor visits, prescription medications, and preventive care, total around $3,000.
- With Plan X, they would need to pay the entire $3,000 out of pocket before the plan’s coverage kicks in, leaving them responsible for $3,000 in medical expenses.
- With Plan Y, their expenses after the deductible would be $300, thanks to the plan’s 90% coverage. This would result in lower overall costs compared to Plan X.
This example illustrates that while a lower premium might seem appealing, it’s essential to consider other factors like deductibles, co-pays, and the level of coverage offered. Each family’s healthcare needs and financial situation are unique, and the choice of a health plan should align with those specific factors.
Deductibles
A deductible is a sum of money that a policyholder must pay out of pocket before his or her insurance will kick in and start contributing to medical costs. Deductibles can be a perplexing aspect of health insurance, but they play a pivotal role in determining how much you’ll pay for healthcare services.
A deductibles is like a financial threshold you must cross before your insurance provider starts sharing the costs. For example, Alex, a young adult with a health insurance plan featuring a $1,500 deductible. Throughout the year, Alex requires various medical services, such as doctor visits, lab tests, and prescription medications. Here’s how deductibles affect his healthcare expenses:
- Initial Deductible Payment: Since Alex’s plan has a $1,500 deductible, he is responsible for paying the first $1,500 of his medical bills for covered services. This means he must pay this amount out of his own pocket before his insurance plan begins contributing.
- Shared Costs: After reaching his deductible, Alex’s insurance plan typically shares the costs with him. The specific sharing ratio can vary based on the plan but is often expressed as a percentage. For example, if his plan covers 80% of expenses after the deductible, Alex would pay the remaining 20%.
Now, let’s calculate Alex’s total healthcare expenses for the year:
- Initial deductible payment: $1,500
- Insurance covers 80% of the remaining $2,000 in medical costs: $1,600
- Alex’s share of the remaining costs (20% of $2,000): $400
In this scenario, Alex’s total healthcare expenses for the year amount to $1,900. The deductible played a crucial role in shaping his overall costs. Without reaching his deductible, he would have been responsible for the entire $3,500 in medical expenses.
Understanding deductibles is vital when assessing different health insurance plans. Plans with lower deductibles generally come with higher monthly premiums but may result in lower out-of-pocket costs when seeking medical care. On the other hand, plans with higher deductibles often have lower monthly premiums but may require you to pay more upfront for covered services.
Copayments
A copayment is a specific cost you may be required to pay for medical supplies or services through your group health plan (also known as a copay).
Other examples of health services that usually require copays may include:
- Different types of therapy
- Specialist office visits
- ER or ambulance services
- Remember that it is employees who cover the costs of copayments, not their employers
Typically, most HMO plans have copayments due to contractual agreements with health care providers. Other types of small business health insurance plans, such as PPO plans, POS plans, and EPO plans, also may have copayments among their associated costs.
Usually, the copay is for in-network medical services only. Going to an out-of-network provider could mean that the copayment may not apply, and that the full amount or coinsurance percentage of the bill may need to be paid.
Out-of-pocket costs
Out-of-pocket costs are generally payments you personally make for medical services, while your plan’s out-of-pocket maximum is the annual limit of how much you share costs with your health insurance company through your health plan. This is a set threshold, similar to your deductible, but a higher amount. Once you’ve met it, health insurance companies will generally pay 100 percent of any covered health care costs for the rest of the year.
Out-of-pocket maximums
An out-of-pocket maximum is the annual limit on how much you are responsible for sharing medical costs with your insurance company under your health insurance plan. The out-of-pocket maximum limit does not apply to your monthly premiums, balance-billed charges from health providers outside of your network, or services that your plan does not cover.
Determining out-of-pocket maximums for small business health insurance plans:
Your out-of-pocket maximums may vary depending on the type of small business health insurance plan you choose, and they can usually be understood based on how much you pay toward employee premiums and how often your employees visit the doctor.
Generally, small business health insurance plans with lower out-of-pocket maximums tend to have higher monthly premiums, and small business health insurance plans with higher out-of-pocket maximums will likely have lower monthly premiums.
The health care needs of your employees also play an important role in determining what their out-of-pocket maximums might be.
If your employees are relatively healthy and do not visit the doctor very often, they might choose plans with lower monthly premiums and a higher annual deductible. This is because they might not meet the out-of-pocket maximums to benefit from the resulting full coverage of covered medical costs from the insurance company for the rest of the plan year.
Conversely, employees who require doctor’s visits, treatments, and prescription medications might choose plans with higher monthly premiums and a lower annual deductible, allowing them to more easily meet out-of-pocket maximums and benefit from the resulting full coverage of covered medical expenses from the insurance company for the rest of the plan year.
Understanding employee contributions to health insurance costs
Navigating the world of employee contributions to health insurance costs is essential for both employers and employees. This section aims to shed light on the intricacies of how these contributions work, the factors influencing them, and their significance in the realm of healthcare coverage. Understanding these dynamics is crucial in making informed decisions regarding health insurance plans, ensuring financial stability, and fostering a healthy workforce.
Employee premium contributions
Employee premium contributions refer to the portion of health insurance premiums that employees are responsible for paying. These contributions are typically deducted from employees’ paychecks and can vary based on several factors. The most common factors influencing these contributions include the type of health insurance plan chosen (e.g., PPO, HMO, or HDHP), the level of coverage (individual or family), and the employer’s policies. In some cases, employers cover a portion of the premium costs, reducing the amount employees need to contribute. The percentage of the premium that employees must pay often depends on the specific employment agreement and the company’s benefits package. It’s essential for both employers and employees to understand these contributions to make informed decisions about health insurance coverage and budgeting.
Employer and employee cost-sharing
As an employer calculating the cost of small business employee benefit, you will need to determine how much the company will contribute to premium payment and how much employees will pay. This is a form of cost-sharing.
There is significant variance nationwide in the distribution of premium cost between employer and covered employee. As indicated in the KFF 2021 Employer Health Benefits Survey, among small businesses (defined in the KFF study as those employing under 200 workers):
- 29 percent of covered workers in small firms have an employer that pays the full premium for single coverage;
- Only 3 percent of covered workers in small firms pay more than 50% of the premium for single coverage;
- For family coverage, 10 percent of covered workers in small firms have an employer that pays the full premium;
- 31 percent of covered workers in small firms pay more than 50 percent of the family coverage premium.
To illustrate the employer’s cost-share for employee benefits, a small business owner who paid between 25 percent and 50 percent of employees’ family coverage would pay on average about $463 to $926 per covered employee per month.
Navigating additional costs in small business health insurance
Small business owners often face the challenge of providing health insurance coverage to their employees while managing the associated costs. Beyond the basic premiums, there are various additional expenses and considerations that come into play when crafting a comprehensive health insurance plan for a small business. This section delves into these extra costs, shedding light on factors such as deductibles, copayments, out-of-pocket maximums, and ancillary benefits that can impact the overall affordability and effectiveness of a health insurance plan for both employers and employees. Understanding these additional costs is essential for small business owners to make informed decisions about their healthcare offerings and ensure the well-being of their workforce.
Prescription Drug Coverage expenses
Navigating the additional costs associated with prescription drug coverage in small business health insurance plans involves understanding various aspects such as copayments, deductibles, formularies, and coverage tiers. Employees should carefully review the prescription drug benefits offered, including the list of covered medications and any requirements for prior authorization or step therapy. Employers can consider different plan options and explore cost-sharing strategies to strike a balance between comprehensive coverage and affordability. It’s crucial to communicate these details clearly to employees, empowering them to make informed choices and manage their healthcare expenses effectively.
Specialty services and medical procedures
Navigating additional costs related to specialty services and medical procedures in small business health insurance plans requires a proactive approach. Employers can provide employees with clear information about network providers, referrals, and pre-authorization requirements for specialty services. Encouraging employees to communicate with their primary care physicians and insurance providers can help ensure that they follow the appropriate channels for obtaining necessary treatments and procedures. Additionally, exploring different plan options that balance coverage and cost-sharing can assist in managing expenses related to specialty care. Transparent communication and understanding the specifics of the chosen health insurance plan are key to effectively navigating these additional costs.
Managing and reducing Small Business Health Insurance costs
Managing and reducing small business health insurance costs involves several strategic steps. First, consider offering a range of plan options to employees, allowing them to choose plans that align with their needs while managing overall costs. Implement wellness programs and encourage employees to adopt healthier lifestyles to reduce long-term healthcare expenses. Regularly review your plan’s performance and consider shopping for competitive rates from different insurance providers. Explore health savings accounts (HSAs) and flexible spending accounts (FSAs) as cost-effective ways to help employees cover out-of-pocket expenses with pre-tax dollars. Lastly, seek advice from an experienced insurance broker who can assist in optimizing your plan design to strike the right balance between affordability and comprehensive coverage.
Calculating the average cost of Small Group Health Insurance per employee
Although the cost of small group health insurance is usually lower overall, the specific financial details of a small group health insurance plan vary based on a number of factors. Thus when calculating the cost of small business health insurance for your company, take into account:
Employer contributions: In a small group health insurance plan, employers and employees typically split the cost of small business health insurance between them. For a plan that covers their entire family, the average worker has to contribute $6814 a year in premiums, with the employer covering the rest, according to the Society for Human Resource Management.
Specific coverage: The cost of small business health insurance may increase depending on what is covered. In a hazardous industry, for example, employers may purchase small group health insurance plans that cover certain risk-related illnesses and injuries. This can push up the total cost of small business health insurance, whether for the employer, for their workers, or for both.
Tax credits: Under the Affordable Care Act, employers who have fewer than 25 employees, who pay average wages of $52,000 or less, or who cover at least half of their employees’ premiums may be eligible for tax credits for their small group health insurance plans. These can lower the cost of small business health insurance.
This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.
eHealth is committed to helping employers of all stripes get affordable small group health insurance plans. For more information or to find the plan that’s right for you, browse affordable small business health insurance plans today.
