Small Business Health Insurance Costs

The cost of offering health insurance to employees is only increasing, which has caused many employers to question whether or not providing health benefits will eventually become unsustainable. This is particularly the case for small businesses, as they generally have tighter budgets, fewer resources, and less employees to meet participation requirements.

Though, for small business owners, the cost of providing health insurance to employees ultimately comes down to the type of plan you choose, the needs of your employees, and employer contributions. Continue reading to learn more about the costs that small business owners can expect when offering health insurance to their employees, in addition to some frequently asked questions regarding small business health insurance costs.

How Much Does Health Insurance Cost Small Business Owners?

For small businesses that seek to take care of their employees and their family members, providing health insurance can be a major expense. So, what does health insurance cost small business owners? While the actual cost depends on a wide variety of factors, consider the following estimates and guidelines regarding small business health insurance costs:

• In 2018, the average cost per-person for small group health coverage was $409 a month. In comparison, the cost of an individual health plan in the same year was $440.
• In 2018, small group health insurance had an average yearly deductible of $3,140. In comparison, the yearly deducible for individual plans that same year was $4,578.

At this point, you may be wondering why individual coverage is more expensive than small business health insurance coverage. This largely has to do with the fact that the insurer’s risk is distributed between an entire group of people, meaning the bigger the group, the more spread out the costs are for health care. Or, in other words, the bigger the group, the more monthly payments the insurance company is receiving, and then the more money the insurer has when a member requires care.

Average Cost of Small Business Health Insurance

With the aforementioned ballpark numbers in mind, a 2020 Kaiser Family Foundation report found that the average yearly health insurance premium for small businesses was as follows:

• $7,483 for single coverage, where employers paid 84%, or $6,297.
• $20,438 for family coverage, where employers paid 67% or $13,618.

This report considered “small businesses” to be those with between three and 199 employees. Employers with less than 50 employees are not legally obligated to offer health insurance. Although it can be expensive, offering health insurance to your employees is an excellent way to attract and retain employees, enjoy a number of tax benefits, and stick out amongst the competition.

Small Business Health Insurance Costs

Just like individual health insurance plans, small group health insurance plans come with a number of distinct costs, including premiums and deductibles.

• Premiums are fixed payments, typically made monthly. Policyholders are required to pay their premium each month in order to ensure that they stay enrolled in their plan.
• Deductibles are an amount of money that a policyholder has to pay out of pocket before their insurance starts to kick in and pay for medical expenses.

To put things in perspective, imagine that, as the employee, your insurance premium is $300 a month and your deductible is $1500. This means that you must pay $300 every month in order to maintain your health coverage. It also means that if you have $3,000 in medical bills in a single year, you must pay the first $1,500 before your insurance provider will start paying for the remainder. Afterwards, you’ll generally pay either a copayment or coinsurance for each visit to a physician.

What is a Copayment?

A copayment, or ‘copay’ for short, is a distinct cost that may be required in exchange for medical services or supplies through a group health plan. Additional health services that generally require a copay include:

• Visits to a specialist
• Various forms of therapy
• ER visits and ambulance services

Keep in mind that it is the employees that cover the cost of copayment. Small business owners do not have to pay for copays. Most HMO plans tend to have copayments, because of their agreements with providers. Though, other plans, may also have copayments among their various costs.

In most cases, copayments only apply to in-network services. Out-of-network services will usually require the full amount to be paid or coinsurance percentage of the full bill.

What are Out-Of-Pocket Costs & Out-Of-Pocket Maximums?

Out-of-pocket costs refer to payments that the employee personally makes for health services, while the out-of-pocket maximum is the yearly limit for how much costs are shared with the insurance company. Once the out-of-pocket maximum is met, insurance companies will usually cover 100 percent of any remaining covered health care costs for the year.

So, how do you determine out-of-pocket maximums for small business health insurance coverage? The out-of-pocket maximums tend to vary based on the small business health insurance plan you select. In most cases, they can be determined by how much you pay toward employee premiums and how frequently your employees require medical care.

In most cases, small business health insurance plans that have lower out-of-pocket maximums have higher monthly premiums, and vice versa.

Consider your employees unique health care needs. For instance, if your employees are mostly healthy and do not go to the doctor very often, they may select a plan with a lower monthly premium but a higher deductible. On the other hand, employees who visit the doctor often and have prescription medications may choose a plan with a higher monthly premium and a lower deductible. That way, they will meet out-of-pocket maximums quicker and benefit from having their medical expenses covered by the insurance company for the remainder of the year.

Factors that Impact the Cost of Small Business Health Insurance

There are generally three main factors that impact how much small business health insurance costs: The plan you pick, required employer contributions, and your employee’s profiles.

The plan you pick

Under the Affordable Care Act, health insurance plans are split into four categories based on how much the insurer contributes: bronze, silver, gold, and platinum. Bronze is the least expensive for the employer, while platinum is the most expensive. For example, with a platinum plan, the employee only pays 10% of the cost of care and the insurer pays 90%.

With your budget in mind, you can choose to offer one type of plan, or the option to choose between different tiers based on their needs. In either case, the amount that you pay per employee does not change.

 Required employer contributions

Most insurance companies require employers to pay not less than half of their employee’s insurance premium. This is also required if you want to qualify for the federal small business health care tax credit. Fortunately, that 50% requirement can be used to quickly determine how much it’ll cost you to provide health insurance to your employees.

For instance, if the average annual cost of single coverage is around $7,483, as a small business owner you’d pay around $3,742 per year for one employee.

 Employee profiles

According to the Affordable Care Act, pre-existing medical conditions and an employee’s specific medical history can not affect the cost of small group health insurance. Also, no one can be denied insurance based on their medical history. With this in mind, the only factors that can impact the cost of health insurance premiums are:

• Where your employees reside.
• The age of both your employees and their dependents.
• Your employees’ tobacco usage patterns.

If a majority of your employees fall into one specific age group or if a number of them use tobacco, for instance, you may have to pay higher premiums as a small business owner.

Frequently Asked Questions

Are small businesses required to offer health insurance to their employees?

A business is legally required provide health insurance to its employees if they have 50 or more full-time employees. If you have less than 50 employees, you may be exempt depending on the state you are located in. Though, for example, the state of Hawaii has stricter rules that require businesses to offer health insurance regardless of the size.

As a small business owner, when can I shop for health insurance?

Unlike the general population that typically has to wait for an open enrollment period, business owners can shop around for health insurance at any time of the year. Once you purchase a plan, your premiums are set and locked in for a year. Though, you can add new employees and their dependents and drop coverage for former employees during the year. Then, once the year is up, you can start shopping around for a new plan or renew your existing coverage.

How many employees do I need to apply for small business health insurance?

You must have at least one employee on payroll in order to be eligible for small business health insurance. Though, rules can vary depending on the state and insurance company you go with. A professional, licensed health insurance broker will be better equipped to recognize whether or not you qualify for coverage in your area.