As businesses strive to attract and retain talented employees, providing comprehensive and attractive employee benefits has become increasingly important. Among these benefits, group health insurance stands out as a vital component, as it ensures the well-being of employees and their families. However, understanding the true cost of offering group health insurance is crucial for employers to make informed decisions.
In this blog post, we will delve into the factors contributing to the cost of group health insurance and shed light on its true implications for businesses.
Benefits cost: premiums and contributions
One of the primary expenses associated with group health insurance is the premium, which is the amount paid to the insurance company to provide coverage. Premiums are typically shared between the employer and employees, with the employer contributing a significant portion. If the business is not considered an Applicable Large Employer (ALE), the employer’s portion of the premium is completely up to the small business. The premium share depends largely on the group’s overall budget for benefits, among other variables such as competitor employee offerings, the spread of benefit offerings to which the employer contributes, etc…
Group health insurance costs vary depending on workforce size, employee demographics, and the chosen insurance plan. With most small business group health medical plans, rates are age-banded, meaning that each age has a rate assigned to it. Typically, the age band range is from 24 to 65+. It is not uncommon to see the age-banded rates for the older spectrum of employees increase as much as 300% compared to the younger age-banded rates.
With small-group health insurance, employees could see a significant overall cost reduction compared to purchasing individual insurance through the Marketplace. According to 2018 research conducted by eHealth, a private online marketplace for health insurance, the average premium cost per individual in a group health insurance plan was $409 a month compared to $440 for an individual plan. Accordingly, a small group health plan had an average deductible of $3,140 a year compared to $4,578 for individual plans.
Employee insurance: How to balance cost and coverage
The specific plan design and coverage options selected by the employer also influence the cost of group health insurance. More comprehensive coverage, including benefits like prescription drugs, mental health services, and preventive care, generally comes with a higher price tag. It’s essential to balance providing robust coverage and managing costs effectively.
Typically, if you have a plan that has very low deductibles and low maximum out-of-pocket costs, the monthly premiums tend to be significantly higher than those plans that have higher deductibles and higher maximum out-of-pocket costs (sometimes called high deductible health plans, or HDHPs).
Also, the more benefit-rich a plan is, the more one will pay for the coverage. Most small group health plans are relatively the same based on the type of plan meaning that these plans do not have much variation in terms of coverage. The larger group health insurance plans can have variety based on the group’s ability to negotiate with carriers and tailor plans more specific to their workforce. Unfortunately, many small group carriers do not provide this option.
Benefits cost: Employee utilization and preventative care
The utilization of healthcare services by employees can significantly impact the overall cost of group health insurance. A higher number of claims and medical expenses lead to increased premiums upon plan renewal. Employers should consider educating employees about healthcare utilization, promoting wellness programs, and offering preventive care options to help manage costs. The more effort that employers put into preventative care, the better off they will fare when it comes to renewing benefit plans.
Simple education goes a long way in terms of the cost of overall claims. For example, there are many instances where an employee will go to the emergency room instead of going to urgent care to triage and treat their ailments. Trips to emergency rooms are never cheap! Also, education on stress management, workplace safety, and ergonomics – to name a few examples, can go a long way to helping prevent repetitive stress injuries, doctor visits for depression/anxiety, etc.
Benefits cost: Administrative Costs
Beyond the premiums and coverage, employers must also consider administrative costs associated with group health insurance. These include expenses for enrollment and eligibility management, claims processing, compliance with regulations, and the services of insurance brokers or third-party administrators. These costs should be factored into the overall assessment of offering group health insurance. Whirks offers our brokerage and administrative services through The Whirks package in which the fee is based on a PEPM (per employee, per month fee) for our services.
Understanding regulatory compliance
The true cost of group health insurance also involves compliance with numerous federal, state, and local regulations. COBRA is the main compliance piece for small group employers who employ 20 or more employees. There are numerous reporting requirements as well as notices that need to be mailed to not only employees who have lost benefits eligibility, but also those employees who have newly enrolled into benefits.
Section 125 reporting is also a main compliance focus for employers offering group health insurance. Section 125 of the IRS tax code states that there must be a Premium Only Plan document written for employees should an employee want to offer pre-tax benefits to their employees. In summary, the document outlines the rights of the employee to choose to have their deductions pre- or post-tax. You cannot provide pre-tax deductions without Section 125 Premium Only Plans in place.
Group health insurance is a strategic investment in your employees
Offering group health insurance to employees is a significant investment for any organization. Understanding the true cost of this benefit is crucial for employers to make informed decisions and allocate resources effectively. By considering factors such as premiums, plan design, utilization, administrative costs, and regulatory compliance, businesses can navigate the complexities of group health insurance while ensuring the well-being of their workforce.
Remember, the cost of providing group health insurance is not merely a financial one but also a strategic investment in the health, productivity, and overall satisfaction of employees. By carefully assessing the true cost and exploring options that strike the right balance, businesses can create a sustainable healthcare program that benefits both the company and its valued employees.
Don’t want to handle the complexities of insurance and the day-to-day burden of administration? Contact Whirks today to see how we can support your organization. Whirks cuts out the “middleman” and is both the broker of record for your insurance as well as the group administrator that handles 100% of the benefits administration for both you AND your employees! Give us a call today or click here to schedule time with us!
Looking to learn more about how to provide attractive benefits as a small business? Check out our article on how to get your employees an HSA plan. Ready to talk about how you can implement these changes for your business today?