Have you hired a team to help take your small business to the next level? Congrats! That’s a huge milestone worth celebrating, and a definite sign that you’re crushing it.
But, like any other major moment as a small business owner, hiring help can come with its own set of questions. Like – how much does small business health insurance cost? Are you required to offer it? What’s the benefit for your business if you do? And what type of coverage should you choose?
We’ve put together a comprehensive guide to help you understand small business health insurance costs and pick the right plan for both your business and your team.
What is a group health insurance plan?
Unlike an individual plan that’s tailored to one person’s unique risk profile, group insurance offers coverage to multiple people simply because they are part of a group, like company employees or members of an organization. It’s typically divided into two categories: small group health insurance plans (for 50 members/employees or less) and large group health insurance plans for 50+ people.
Group coverage is often cheaper than individual coverage because the likelihood of a claim is shared across many policyholders. Plus, premiums for these types of plans are also different, since they’re split between the employer and the employees.
Is it mandatory to offer health insurance?
The Affordable Care Act (ACA) only requires companies to offer group health insurance if they have 50 or more full-time or full-time equivalent employees – but even if you’re not obligated to provide it, there are several reasons why you might want to. In fact, 87% of employees in a recent PeopleKeep survey indicated that having a health insurance benefit is “extremely important” to them – so there’s no doubt that offering group health insurance can give you an edge when it comes to attracting and retaining top talent.
Is small business health insurance expensive?
Like many things these days, group health insurance costs appear to be on the rise, which can make it particularly challenging if you’re an entrepreneur operating on a smaller budget.
According to the Kaiser Family Foundation’s (KFF) 2022 Employer Health Benefits Survey, the average cost of group health insurance coverage for a single individual was about $7,911 a year and the cost for a family was over $22,000. Since these totals are split between employer and employee, the employer contribution for businesses with fewer than 200 employees was estimated at $1,900-$3,900/employee for single coverage, and approximately $5,600-$11,200/employee for family coverage.
What factors affect the cost of health insurance?
The cost of health insurance is incredibly varied from business to business. Here are a few key contributors that will determine the price of your small business health insurance:
The size of your business
Small businesses tend to pay significantly more for health insurance coverage than larger ones. This boils down to two reasons: bargaining power and regulatory requirements.
Small business health insurance premiums are often set by the insurance company, whereas larger companies use insurance brokers to negotiate on their behalf. Plus, small businesses are required to cover all ten of the ACA’s Essential Health Benefits which range from ambulatory patient services, to emergency services, mental health services, maternity and newborn care, wellness and preventative care, and more. This results in higher premiums. Larger companies retain more flexibility to design their own health insurance options, and typically have access to innovative (and cheaper) avenues, like telemedicine.
How many employees you have
Since you’re responsible for a certain percentage of each employee’s total health care cost, the more employees you have, the more you’ll pay each year (until you qualify as a “large company” and can negotiate a better rate).
You could have your employees pay a larger percentage to reduce your costs, but most insurance companies require that you contribute at least 50% of your employees’ premiums (and paying at least half is also necessary if you want to claim federal tax credits).
Plus, most states won’t allow you to offer a small business health insurance plan unless 70% or more of your employees enroll – so you’ll need to ensure your offer is enticing enough for team members to join in.
Where your business is located
Like any insurance policy, premium costs may be higher depending on where you’re located. Historically, total per capita health spending tends to be highest in New England and the Mideast U.S, so if your business operates in these regions, you’ll want to prepare to pay a little more.
Also: the industry you’re in matters too. Transportation, health care and utilities businesses tend to have higher monthly premiums.
The type of plan you choose
There are two main types of small business health insurance, and which one you pick will affect how much you pay.
A Preferred Provider Organization (PPO) plan enables your employees to access a predetermined network of healthcare practitioners (known as “preferred providers”) for a reduced cost. Since this type of plan typically offers more comprehensive coverage and more services that others may exclude, it tends to cost more.
A Health Maintenance Organization (HMO) plan, on the other hand, requires that your employees seek medical care from a single primary care doctor. With this type of plan, they can only receive covered care from additional medical providers if their primary care doctor has provided a referral, which tends to make these types of plans less expensive.
The type of tier you choose
In addition to the type of plan you pick, the Affordable Care Act also divides all insurance plans into four tiers based on employer contributions. The bronze plan is the least expensive for employers, and is followed by the silver, the gold, and then the platinum plan (which is the most expensive for employers).
You can also allow your employees to pick their own tier. In this case, you would contribute the same amount for every employee, but each team member could opt to pay more or less for different levels of coverage depending on their specific needs.
To determine how much a policy will cost you, follow these three steps:
- Pick your plan options and tier type: Decide whether you’d like to offer a PPO or HMO plan and then pick your tier. Keep in mind that a bronze plan typically requires you to foot 60% of the total cost (with your employees covering the other 40%) whereas a platinum plan will have you on the hook for 90% of the total cost (with your employees covering just 10%).
- Request multiple quotes: Decide if you need to offer any coverage for specific risks that your employees might face, and then consider both the age of your staff and where you are located. These factors will help you determine how much coverage your policy should offer. From there, request quotes from a few health insurance companies.
- Compare prices: Once you have your quotes back, pay attention to the out-of-pocket costs that are associated with your plan – like deductibles and copayments. These are costs that your employees will be on the hook for, so – even though higher amounts can reduce your overall premium – they will also affect how happy your employees are with the plan you’ve chosen.
Are there strategies I can use to lower my small business health insurance costs?
Yes! Here are a few ways you can save money while offering this valuable employee benefit:
- Take advantage of tax credits: If you have less than 25 full-time employees, pay less than $56,000 in wages each year, or pay at least 50% of your employees’ health insurance premiums, you may be eligible for a Small Business Health Care Tax Credit. You can also qualify for tax credits if you have 50 or fewer full-time people on staff and you purchase coverage through the Small Business Health Options Program (also known as the “SHOP marketplace”). Be sure to check your specific state’s requirements though, because some will allow you to qualify for tax credits with upwards of 100 people on staff.
- Use a Professional Employer Organization (PEO): This type of company will administer benefits on your behalf. Since they serve as a “co-employer” for several small companies, they get access to more competitive rates than you may be able to find on your own.
- Consider a Health Reimbursement Arrangement (HRA): This is an employer-funded health benefit that allows you to reimburse your team members (tax-free!) for their health care expenses, rather than pay a monthly or annual premium for their insurance. Think of it like an allowance – you get to decide how much you’ll cover, and your employees get to decide what they want to spend it on: their own individual health insurance premiums, out-of-pocket medical expenses, or a combination of both. If you want to go this route, a Qualified Small Employer HRA (QSEHRA) may be right for you.
The bottom line
Choosing a small business health insurance plan comes with a lot to think about – and that’s why Practice is here. From nailing your late fee wording, to writing reminder emails, creating invoice templates, or simplifying your client onboarding, we provide all the tools you need to save time (and money!) so you can focus on growing your business the right way.