For small business owners, the costs of providing health insurance for you and your employees can vary depending on multiple factors, but it’s almost always a significant expense. Regardless, health insurance is still a benefit many small business owners strive to offer their employees, helping them to attract and retain top talent.
Even as far back as 2012, healthcare costs were a big concern for small business owners and their employees. The Affordable Care Act helped open the insurance marketplace up to small businesses, offering more options to smaller teams, but higher health costs prompted some owners to sell their small business. How can a small organization provide health insurance plans if no affordable options are available?
Of course, small businesses with fewer than 50 employees are not mandated by the Affordable Care Act to offer health insurance coverage. However, this doesn’t imply that these companies cannot reap the benefits of providing health insurance. In fact, offering health insurance can contribute to a healthier workplace, provide employees with peace of mind, and give small businesses a valuable competitive edge.
How does small business health insurance function, and what are the associated costs? If you’re concerned about healthcare expenses for your small business, continue reading to discover ways to alleviate your small business healthcare concerns.
How Does Health Insurance Work?
How does health insurance work? While health benefits vary based on the plan and insurance company, most health insurance providers follow the same basic concept. Individuals can choose their own plans through the health insurance marketplace, or a company offering health insurance can choose to offer a group health plan.
In the latter case, the company pays a portion of the insurance premium, while the remainder is deducted from each employee’s paycheck. According to an NBGH survey, employers covered nearly 70% of the cost of health insurance premiums in 2020, while employees paid 30% on average.
The plan will have a policy that dictates all the details of what healthcare costs are covered and how much is paid. When a covered person receives healthcare, the medical provider will bill the health insurance company for its determined coverage amount, while the patient is responsible for paying any deductibles, copays and noncovered costs. Most health insurance companies will offer higher premiums for lower co-sharing costs and vice versa.
Small Business Health Insurance Costs
How much does small business health insurance cost? Determining the cost of small business health insurance is a complicated process that accounts for multiple factors. Why doesn’t everyone pay the same? To understand small business group health insurance plan costs, be mindful of the following considerations.
Location
Due to variations in competition, state and local regulations, and the cost of living in different areas, health insurance costs can differ significantly from one location to another.
Age
Health insurance companies recognize that healthcare costs tend to rise as individuals age, leading them to impose higher premiums on older customers. In fact, premiums for older adults can be up to three times greater than those for younger individuals.
Tobacco Use
Insurance companies can charge tobacco users as much as 50% more than those who do not use tobacco because of the higher health risks associated with the behavior.
Individual vs. Family Coverage
Insurers may charge higher premiums for plans that provide coverage for a spouse and dependents compared to those that cover only an employee or small business owner. However, individuals with multiple dependents typically pay a lower rate per dependent than the cost of covering just a single spouse or child.
Plan Category
Health insurance is available in five plan categories, which determine how costs are shared. For example, bronze plans typically boast lower monthly premiums and higher out-of-pocket costs when care is received. Platinum plans, on the other hand, will have the lowest out-of-pocket costs but the highest premiums.
Average Small Business Employee Health Insurance Cost
Employee premiums and group health insurance costs can vary greatly based on factors like location and employee’s age, but even group health insurance premiums have an average. According to a 2021 report from the Kaiser Family Foundation, the average annual health insurance premium for small firms – with a small firm being defined as a company with 199 or fewer employees – was $7,813 for single coverage and $21,804 for family coverage. Employers contributed an average of 83% of the single coverage costs, while they paid 63% of the family coverage premiums.
Under the Affordable Care Act, if an employer has fewer than 25 employees and their average wages are $52,000 or less, they may qualify for tax credits to help reduce the cost of small business health insurance. This eligibility applies if the employer covers at least half of their employees’ health insurance premiums.
Average Cost of Dental Insurance
Dental insurance is not mandated by the Affordable Care Act; however, many employees consider it an important benefit. The good news is that providing dental insurance is significantly less expensive than offering health coverage. In fact, group dental insurance plans cost employers between $8.94 and $13.90 each month, with the precise monthly cost varying based on the insurance carrier and the level of coverage chosen.
Average Cost of Vision Insurance
Vision insurance can be an affordable benefit for small business owners to offer their employees. These policies typically cover an annual eye exam, and they might offer limited coverage or reimbursement toward the purchase of eyeglasses. While the benefit is a basic one, it’s a valuable perk for employees. The average vision insurance package costs a small business between $5 and $10 per month for each covered employee. A more comprehensive package can cost as much as $20 per employee per month.
Average Cost of Health Savings Accounts
Savings may be available on small business health insurance costs through a health savings account. Available to those who enroll in a high deductible health plan – which generally comes with a lower premium – an HSA is a tax-advantaged account created for or by individuals to save for qualified medical expenses. Money can be deposited into this account by the individual or by their employer as a part of the company’s health benefits.
While costs can differ, it’s essential to note that a high deductible health insurance plan only begins to provide benefits once an individual has incurred at least $1,400 in qualified healthcare expenses, or a family has spent a minimum of $2,800 in a covered year.
How to Save Money on Health Insurance Premiums
The costs of small business health insurance can accumulate rapidly, which may lead small business owners to feel overwhelmed when deciding whether to provide health insurance. Fortunately, there are strategies available to help lower the expenses associated with group health insurance plans, making health benefits more accessible and affordable.
Shop around to find the right health insurance company. Look at the health insurance marketplace to see the different types of coverage and pricing plans available.
Select a self-funded health insurance plan and contract directly with hospitals and doctors.
Choose a high deductible healthcare plan and combine it with a health savings account.
Obtain tax credits by offering a qualified healthcare plan through the SHOP marketplace.
Boost your buying power as a small business by partnering with a third-party provider.
Engage with an external benefits provider to pinpoint areas of financial inefficiency within your current group’s health insurance plans.
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Small Business Health Insurance
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This article, “How Much Does Small Business Health Insurance Cost?” was first published on Small Business Trends