Deciding On Employee Group Coverage: Costs Vs. Benefits

Thursday, March 14, 2024 20:35 Posted by Admin

Employee Group Coverage – also known as employer-based coverage – is a health insurance plan offered by employers for the benefit of their employees. Many employers bundle supplemental plans such as dental, vision, and pharmacy coverage. Health insurance plans offered by small and large businesses are the most common way for employees to obtain coverage for themselves and their family.

While group coverage for your employees may be costly – offering these benefits in lieu of high salaries may help your business edge out the competition when hiring and retaining the best workers. Small businesses may also be able to take advantage of tax benefits by implementing large group employee group health insurance coverage.

There are many tax benefits for both employee and employer to reduce their total taxable income for the cost of employee group coverage. Monthly premiums paid by employers are tax-deductible. Premium payments by employees are considered pre-tax – thereby reducing their total taxable income.

Costs of Employee Group Coverage for Small Businesses

The cost of providing employee health insurance will depend on what plan is purchased by the employer’s business. It can be a substantial expense for small business owners to provide an employee group plan to their employees.

In 2021, the Kaiser Foundation conducted a survey and reported that annual premiums for employer-sponsored health insurance coverage averaged $22,221 – with workers paying an average of $5,969.

The same survey found small business (three to 199 workers) group health insurance averaged:

  • Single Coverage – Employer’s contribution = $6,485 (83 percent)
  • Family Coverage – Employer’s contribution = $13,737 (63 percent)

The Kaiser Foundation reported that 99 percent of large organizations and 58 percent of small businesses offer employee group coverage to their employees.

The cost of providing health insurance to your business’ employees depends on many factors.

  • Number of workers in employee group
  • Type of employee group plan purchased (PPO or HMO)
  • State business is located
  • Employee demographics (average age)
  • Healthcare inflation factors

Number of Workers in Employee Group

The group size – including family members – expected to participate in your business’ health insurance plan will be a primary factor determining cost. The larger the group – the less cost to your business. This is because there is a lower overall distribution of risk to balance the cost between healthy and not so health workers.

Type of Employee Group Plan Purchased (PPO or HMO)

Health Maintenance Organizations (HMOs) are more affordable because monthly premium costs are lower for employers – compared to PPOs. However, PPOs limit employees to a selected group of healthcare providers (network of physicians).

Although Preferred Provider Organizations (PPOs) offer more healthcare provider choices to employees – including specialist consultations – these plans are not cost contained like HMOs.

State Business is Located

The laws of the state your business is located could significantly increase the cost of your company’s employee group plan costs. There are 17 states with a law on the books requiring insurance companies to extend or offer coverage for the diagnosis and treatment of infertility. In highly populous cities – like Chicago and NYC – healthcare providers and procedures are more expensive, resulting in higher employee group premiums by employers.

Demographics of Your Employees

A group’s average age will have a remarkable effect on the business’ premium costs. Higher premiums can be expected if your company employs workers of an older average age. However – pursuant to the Affordable Care Act (ACA), the employer’s average premium cannot exceed three times that of a business with younger workers.

Healthcare Inflation Factors

An employer’s premium for the next year will be determined by the number of claims made by the employee group and their total medical expenses in the present year. Businesses employing workers with extensive medical issues – or – who make frequent, regular visits to their healthcare provider(s) will determine the overall cost of services provided to the entire group.

Benefits of Employee Group Coverage

According to a survey of small business owners, the No. 1 benefit of offering small business employee group coverage appears to be a cost-effective means of hiring and retaining employees who are motivated to outperform competitors.

  • Increases loyalty and decreases employee turnover
  • Creates an edge in employee recruitment because of candidate and worker benefit package expectations
  • Enhances the good health of employees so they are increasingly productive
  • Reduces employee sick days by incentivizing good health among workers

Employee recruitment efforts cost time and money. Your business will have an advantage over many competitors’ profitability because employee group coverage lowers hiring costs.

Benefits of Employee Group Coverage Outweigh Costs

There are very few ways to enhance your workplace atmosphere and boost worker moral more than having healthy employees who don’t neglect medical issues because of the high cost. When employees seek medical attention promptly, their serious health issues may be avoidable and work injuries are less likely to occur. This will result in fewer workers’ compensation claims as well as employee disability and sick leaves. These benefits will increase your profit bottom line.

Written by Todd Taylor

Todd Taylor

Todd Taylor oversees most of the marketing and client administration for the agency with help of an incredible team. Todd is a seasoned benefits insurance broker with over 35 years of industry experience. As the Founder and CEO of Taylor Benefits Insurance Agency, Inc., he provides strategic consultations and high-quality support to ensure his clients’ competitive position in the market.

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