The Affordable Care Act is a 20,000-page law, so naturally most elements of the law are complicated and not clear-cut. This is true of the rules and regulations regarding employer provided health insurance. The most basic variance is between small and large businesses in terms of offering health coverage to employees.
It’s great to be an employer that can provide great health insurance options to its employees. It’s an excellent way to attract top talent to your organization and retain employees. But whether you’re a small business or large corporation, the costs of health care for employees is a concern.
Insuring Employees for Small Businesses
There are a number of factors that play a role in determining the costs for health insurance for your workers, which include:
- The insurer you choose
- The type of plan you opt for, i.e. PPO, HDHP, HMO
- Your geographic location
- The providers in the network
- Your strategy for contributing to the plan
- The demographics of your workers
The Internet is a great resource for finding information and detailed quotes for health coverage. The national averages for health coverage is a great place to begin your research. Let’s review some of the facts.
The Cost for Health Coverage
Companies that offer health coverage have to buy one or more plans for all employees and their eligible dependents. This is called group coverage or employer-sponsored health coverage. The average cost for premiums in 2015 was $521 monthly or $6,251 yearly.
In most cases, the costs are shared between the employee and employer. On average, companies pay 83 percent of the premium for singles ($5,179 annually) and 72 percent for families ($12,591 annually). The rest is paid for by the employee, which is normally deducted from their paychecks.
The cost for group health insurance varies from year to year, with rates tending to rise at least some during each new enrollment period. Last year, a lot of policyholders saw rate increases during renewal time, and about a quarter of them were looking at double digit premium increases.
This type of fluctuation can be devastating for small businesses with limited income. You can reduce your cost burden by adjusting your contribution strategy.
Create a Defined Contribution Strategy
You can create a defined contribution model that safeguards your business from premium increases. Rather than buying group health coverage and paying the rate determined by the insurer, you can set your own rules. You can make it so that your business can:
- Set how much it will contribute to an employee’s health insurance premium.
- Determine reimbursements for employee premiums, not exceeding their available balance amount.
- Allow employees to opt out of your group health plan and buy health plans through the private market or health insurance exchange.
Your business can go over the costs of individual health insurance policies purchased by your employees before setting up the contribution amounts. Back in 2014, the average cost for individual health insurance was $345 monthly without subsidies and $82 monthly with subsidies.
Individual health insurance policies are lower than group health coverage, which helps businesses to save up to 60 percent by implementing a contribution strategy.