Health benefits have become a staple of modern businesses. In fact, whether an organization offers health insurance or not can be a deciding factor for employees in choosing if they’ll stay with the company.
It might seem like offering such insurance would be a straightforward decision for employers. However, the costs of healthcare have gone up and continue to do so. Many employers now find themselves between a rock and a hard place, having to choose between massive health insurance expenses and employee satisfaction.
As usual, the best thing to do is make a well-informed choice. If you’re an employer looking for coverage options, you’ll want to know the average cost of health insurance per employee before taking the next step.
This article will help you understand the costs and other crucial details about employee health insurance.
Annual premiums for both single and family coverage have been on a constant rise in the past several years. The following is the annual average cost of health insurance per employee.
Between 2019 and 2020, single coverage went from about $7,190 to just over $7,450 while family premiums rose from $20,570 to $21,340. By 2021, single premiums were around $7,740, while the average cost of family health insurance through employer was $22,220.
Of course, it’s still too early to have the numbers for 2022, but the previous years provide a good insight into the rising trend. The increase between 2020 and 2021 was about 4% and the average group health insurance cost will likely go up by around 4.7% in the current year.
It’s important to note that the figures stated here are the total premium costs. This doesn’t mean the company will cover the entire amount.
In fact, employees regularly participate in premiums with companies paying on average about 83% for individual and 73% for family health insurance. This brings the 2021 average company health insurance cost down to $6,440 for individual and $16,250 for family premiums.
Group health insurance rates will vary from one company to the next and don’t necessarily have to reflect the average prices.
Several crucial components dictate group insurance rates: state and federal laws, location, industry, group size, average age employees, company’s administrative costs, healthcare inflation, and the chosen insurance plan.
Firstly, the Affordable Care Act mandates that companies with over 50 full-time employees provide coverage for a minimum of 95% of those employees. The Act also requires the coverage to have set minimum benefits and be affordable.
If the employer doesn’t offer any coverage, they can suffer penalties. The same goes for employers that don’t ensure the coverage provides minimum value and those who offer coverage not considered as affordable.
A minimum value plan will cover 60% of average costs. The plan will be considered affordable if the employee participates in the group health insurance premium with an amount lower than 9.61% of household income.
Of course, these regulations might increase group health insurance costs for the organization, but complying with them will help avoid penalties which can be substantial.
In terms of location, some cities and states simply have more expensive procedures. This will undoubtedly raise the cost of insurance compared to less costly locations, but this factor can’t be avoided when a business is already registered.
Industry is the next crucial factor when determining group health insurance rates. Certain industries will have a higher risk, and increased risk comes with increased premiums. For instance, a company that hires 100 factory workers will pay more for insurance than one that has 100 office workers.
The size of the group is linked with the risk factor, influencing the cost further. Larger groups allow for greater risk distribution and, as a result, have lower rates. It’s worth noting that family members also count in the group in the case of family health insurance.
Similar to most insurance policies, group health insurance premiums will be affected most significantly by age. The base rate considered for insurance is usually 21 years of age. The older an employee is, i.e., the further from that base rate, the higher the premium.
In the case of group insurance rates, the final amount will be calculated based on the average age of group members.
Insurers bear certain administrative costs to ensure proper operation and coverage. These costs can change yearly depending on current market conditions. In effect, an increase in administrative costs for the insurance carrier will lead to a higher average group health insurance premium.
The cost of healthcare services that all members use will impact insurance premiums. If more people claim costly benefits during the year, this will drive premiums up. This mechanism is similar to how inflation works in the economy — increased demand and expenditure leads to higher costs.
Different types of coverage will, unsurprisingly, incur different group health insurance costs. As a simple example, if a company offers a plan with substantial coverage and benefits that’s also very inexpensive for employees, the organization will pay more for the premium.
Every company wants to control its expenses as efficiently as possible. Of course, this also applies to health insurance costs. If your premiums start to get out of hand, they can become cause for concern in the long run.
On the other hand, you don’t want to start reducing costs at the expense of your employee’s healthcare. Fortunately, there are certain methods that can help you find the middle ground.
Firstly, you can explore other healthcare insurance options. For instance, you could encourage employees who are 65 or older to get Medicare coverage. With the oldest group members enrolled in Medicare, the average group age will go down, bringing group insurance rates along.
Next, you can opt for a managed care plan via a Health Maintenance Organization (HMO). These plans come with lower premiums. However, HMOs come with a restrictive network of healthcare providers, which is a factor worth considering when deciding on this option.
Another alternative to the standard group health insurance is to self-insure. This might be a viable option if you have a group with good overall health that warrants a lower number of claims. The main advantage of self-insuring lies in how group health insurance rates are calculated.
Even if you don’t choose an alternative plan, redesigning the current one might prove less costly over time. A good example of this would be coupling a high-deductible insurance plan with a limited network plan or requiring higher employee participation for particularly costly healthcare services.
You could even start by offering a basic plan with an optional expansion to a richer one at the employee’s expense.
It’s possible to affect the cost of health insurance indirectly, too. One of the best ways to do just that while increasing employee satisfaction is to promote wellness programs among your workers. This can be in the form of workplace exercise breaks or discounts for amenities like gyms. After all, healthy employees won’t claim insurance benefits very often and will be much happier in the workplace.
If you have a large group of employees, it might also be possible to negotiate better conditions with your provider. You can do this through the insurance broker. You will be more likely to succeed if this is your first time attempting these kinds of negotiations. Plus, providers that have been with you for some time might be more open to adjusting their rates.
To summarize, there’s no single answer to the question of how much does group health insurance cost. Besides the varying premiums, you have a number of options available to modify the cost. Employing a combination of techniques outlined here might lead to a serious reduction in the cost of your premium.
A Health Reimbursement Arrangement (HRA) represents another alternative to traditional group health insurance. In fact, HRAs can be the perfect middle ground between individual policies and those attained through the employer.
In the case of HRA, the organization doesn’t offer health insurance per se. Instead, employees purchase a plan on the open marketplace. Then, when there are medical expenses to cover, the employer can reimburse the cost through the HRA.
HRAs work through monthly or annual allowances that employers can set. The allowance balance holds the funds that can be used for reimbursement whenever an employee has eligible healthcare expenses. However, the structure of HRAs can be much more complex and include various options, giving both the employer and employees the flexibility to design the most suitable plan.
There are low-budget options like the qualified small employer HRA, ideal for smaller businesses whose employee count doesn’t exceed 50 full-time workers. This plan makes the reimbursement tax-free.
On the other hand, individual coverage HRA is better suited for larger organizations, although it can work for companies of any size. This type of HRA functions as a group health plan in terms of reimbursements, but each employee has the freedom to choose a policy of their liking.
HRAs are an excellent way for a business to save on health insurance costs while providing ample coverage for the employees. Yet, they aren’t ideal in every situation.
For example, when choosing a qualified small employer HRA (QSEHRA), company employees will need to take the allowance amount from the advance premium tax credit. And in the case of individual coverage HRA (ICHRA), employees will need either to waive their advance premium tax credit or opt out of the benefit.
In other words, employees won’t be able to take advantage of the health benefits while keeping their premium tax credits.
This is where health stipends come in.
Health stipends for employees function much like HRAs with some noticeable differences. They are more flexible, burdened with fewer regulations, and taxable. The increased flexibility means there aren’t any obstacles to getting health benefits along with tax credits. It also represents an interesting option for businesses hiring abroad.
If your organization has employees eligible for premium tax credits, health stipends will be the way to go. However, if there are no such employees, HRAs will still present a better option.
As is apparent from this article, employee health insurance is a complex landscape.
Average employee health insurance costs can ramp up to a considerable amount if the employer doesn’t keep an eye on the expenses. And even when all calculations are done and company funds saved in every way possible, the investment may still seem quite pricey.
At the same time, many employees expect certain health benefits to be offered. In some cases, this can make the difference between keeping the top talent in the organization and losing valuable team members.
In other words, employers need to consider a large number of factors to determine how to keep both sides satisfied. Besides relevant regulations, insurance options, and alternative plans, factors like choosing the right carrier will be critical. Rates between different insurance companies can vary widely.
This is apparent when you start shopping around and comparing prices. Unfortunately, many employers fail to consider this factor. But try researching, for example, how much is Kaiser Health insurance per month and compare that to several other companies. The difference might be staggering.
The bottom line is that hitting the sweet spot between optimal health coverage and reasonable insurance costs will take plenty of research. Doing all that work yourself will undoubtedly be time-consuming, but the end result may be well worth it.
Or, alternatively, you could go to the source and gather all of the information you need from a trusted insurance company. You can do that right now by visiting the website of Taylor Benefits Insurance. The site features a blog with helpful info on different aspects of insurance, and you can get a free proposal within minutes to help you get some orientation regarding insurance rates.
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.
We’re ready to help! Call today: 800-903-6066