Both workers and employers face challenges in obtaining affordable insurance due to increasing premiums and an unpredictable policy environment.
How Much Does Small Business Health Insurance Cost Business Owners?
Business owners desire to prioritize the welfare of their employees through the provision of health insurance that is advantageous to both the workers and their families. Nevertheless, the expense of the insurance must be taken into account by owners who comprehend that their company’s financial well-being relies on their overall profit.
The actual cost is determined by various factors including the type of plan and insurer chosen (Premiums tend to be higher for PPOs compared to High Deductible major medical plans), geographical location, and the age distribution of the individuals enrolled in the plan.
A recent study published by the Kaiser Family Foundation (KFF) in 2021 found that small businesses, classified as companies with 3 to 199 employees, and large employers with 200 employees and more, paid similar amounts for providing health insurance to their employees.
- An average monthly premium of $651 for single coverage per covered worker in small firms.
- An average monthly premium of $1,817 for family coverage per covered worker in small firms.
What contributes to the lower average cost of small business health insurance compared to individual coverage is the advantage of risk pooling. This advantage is based on the idea that as the size of the group increases, the costs for providing medical coverage can be distributed more evenly.
The Small Business Administration explains this benefit by highlighting that larger groups result in a greater number of monthly payments being received, enabling the insurance company to accumulate more funds for instances when one of its members requires medical attention.
What Are The Costs Associated With A Small Group Health Insurance Plan?
Similar to individual plans, small group health insurance plans typically include various expenses, including deductibles and premiums.
- A premium is a regular payment, usually made once a month, that policyholders must pay every month to remain enrolled in health insurance.
- A deductible is a sum of money that a policyholder must pay out of pocket before his or her insurance will kick in and start contributing to medical costs.
To exemplify these principles, consider a scenario where your health insurance carries a monthly premium of $400 and a deductible amounting to $1000. Consequently, you need to remit $400 every month for the maintenance of your insurance.
Furthermore, if your medical bills reach $2500 within a year, you are required to settle the initial $1000 prior to the insurance company commencing their reimbursement. Subsequently, for each doctor visit, it is common to pay a copayment or coinsurance fee. Typically, you will only be responsible for a small fraction of the remaining $1500 worth of covered services.
Other Factors That Affect Your Insurance Cost
Let us explore how each of these factors can affect the cost of health insurance for small business owners: the size of your business, the type of coverage you choose, the age of your employees, the locations of your business, and your claims history.
The larger your business, the lower the premiums you pay compared to businesses with fewer employees, as having more employees allows for the absorption of claim costs and reduces financial risks.
The amount you pay for insurance is determined by the type of coverage you choose. Insurance plans that offer extensive coverage, including preventive care and prescription drugs, generally increase costs as they require more resources to provide.
The monthly premium can be influenced by the employees’ age, as insuring older employees or those with chronic conditions might incur higher costs compared to younger, healthier employees.
Higher costs are typically associated with major cities when it comes to the location of your business.
Small businesses that have a history of making frequent claims may be subject to increased premiums. The insurance company incurs greater expenses when insuring businesses that file larger claims.
What Are The Metal Tiers In Small Business Health Insurance?
- Platinum plans are the most expensive from a premium standpoint because they are also considered the richest. The plan typically covers 90% and the employees pay 10% of the cost of services.
- Gold plans usually cover about 80% and the employees pay 20% of the cost of services, which results in higher premiums than the Bronze and Silver plans.
- Silver plan monthly premiums are more than Bronze plans, but the out-of-pocket costs for services are lower, with the plan covering around 70% and the employees paying 30% of the cost of services.
- Bronze plans have the lowest monthly premiums but the highest out-of-pocket costs. Typically, the plan will cover 60% and the employees will pay 40% of the cost of services.
Tax Credit, Deductions, And Reimbursements
Under the Affordable Care Act, small businesses have the opportunity to request a tax credit as a form of financial assistance. Additionally, there are other avenues of relief available to businesses that provide health insurance to their employees, such as tax deductions.
Potentially eligible expenses encompass monthly premiums, contributions made towards a Health Savings Account (HSA), and tax-advantaged funds.
Healthcare.gov states that to be eligible for a tax credit, certain requirements must be met.
- Have less than 25 full-time employees (FTE)
- Average Employee salary is $56,000 or less per year
- Employer pays 50% of the premium cost of full-time employees
- You offer Small Business Health Options Program (SHOP) coverage to all full-time employees
Healthcare.gov provides a tax credit estimator where you can determine if your business qualifies for a tax credit. For further information on the potential tax benefits of providing health insurance to your employees, consult a tax professional.
Employer And Employee Cost-Sharing Impacts Small Business Health Insurance Costs.
When an employer calculates the expense of providing employee benefits for a small business, they must establish the amount the company will contribute to premium payments and the portion that employees will be responsible for. This practice is referred to as cost-sharing.
According to the KFF 2021 Employer Health Benefits Survey, there is a notable disparity across the country in the allocation of premium expenses between employers and employees covered by their health plans. This disparity holds true for small businesses, which the KFF study defines as those with less than 200 employees.
- 29 percent of covered workers in small firms have an employer that pays the full premium for single coverage;
- Only 3 percent of covered workers in small firms pay more than 50% of the premium for single coverage;
- For family coverage, 10 percent of covered workers in small firms have an employer that pays the full premium;
- 31 percent of covered workers in small firms pay more than 50 percent of the family coverage premium.
A small business owner, while demonstrating the employer’s contribution towards employee benefits, would typically pay around $463 to $926 per covered employee per month if they covered between 25 percent and 50 percent of the family coverage cost.
What Is A Small Business Health Insurance Copayment?
You may be obligated to make a payment called a co-payment for medical supplies or services through your group health plan, which is also referred to as a copay.
Some other instances where copays are usually required may involve health services.
- Different types of therapy
- Specialist office visits
- ER or ambulance services
- Remember that it is employees who cover the costs of copayments, not their employers
Copayments are commonly found in HMO plans as a result of contractual agreements with healthcare providers. Similarly, PPO plans, POS plans, and EPO plans, which are other varieties of small business health insurance plans, may also include copayments as part of their associated expenses.
Normally, the copayment is intended solely for medical services received within the network. Opting for an out-of-network provider might result in the copay not being applicable, thereby necessitating payment of the entire bill amount or a percentage of it as coinsurance.
What Factors Influence The Cost Of Small Business Health Insurance?
At least three factors may affect the premiums you end up paying, and it is crucial to comprehend that the costs mentioned earlier are averages.
- The ages of the people in your group and where you’re located
- Your preference when it comes to out-of-pocket costs
- How you shop for coverage
The cost of your group plan may vary based on the ages and geographic locations of the individuals to be covered.
Premiums are determined by insurers based on factors such as the age and location of the employee group, along with the specific features and coverage levels of the plan.
Your premiums will not be affected by pre-existing medical conditions under the Affordable Care Act, and coverage will not be denied based on an individual’s medical history.
What Is The Average Cost Of Small Group Health Insurance Per Employee?
When determining the price of small business health insurance for your company, it is important to consider that the specific financial aspects of a small-group health insurance plan differ depending on various factors, despite the generally lower overall cost.
Employers and employees usually divide the expenses of small business health insurance in a small group health insurance plan. On average, an employee who wants coverage for their entire family is required to pay $6814 annually in premiums, while the employer covers the remaining amount, as stated by the Society for Human Resource Management.
The cost of small business health insurance can vary based on the specific coverage included. In high-risk industries, employers may opt for small-group health insurance plans that specifically provide coverage for illnesses and injuries related to potential risks. A
s a result, the overall cost of small business health insurance can rise for both the employer and their employees.
Tax credits are available for small group health insurance plans under the Affordable Care Act if employers have less than 25 employees, pay average wages of $52,000 or below, or cover at least half of their employees’ premiums. These credits have the potential to reduce the expenses of small business health insurance.