Narrow Networks, Tiered Plans May Reduce Costs

Inflation, an aging workforce and people catching up on care they skipped during the COVID-19 pandemic are some of the main ingredients that will drive the cost of group health benefits over the coming years.

The key for employers grappling with these higher costs is how they can reduce their impact by switching up plan offerings and choosing plans that do a good job of managing specialty drug costs, which have been spiraling over the last decade.

Health spending dropped considerably in 2020 and 2021 as people stayed away from health care environments, but now people are back seeking care that was delayed. That’s caused a sudden spike in claims for health plans across the board.

Also, more health plans have boosted their mental health offerings, which patients have been taking advantage of, leading to further outlays, according to a recent report by Marsh McLennan Agency.

While there is not much employers can do about rising premiums, a combination of measures could help businesses defray cost increases in the near term.

Compare insurance plans and providers

If you’ve been offering the same plans every year, we can work with you to compare providers to see if there are better deals for you among their competitors.

Also, plans can vary greatly among insurance plans and each insurer will have different deals to offer. Even your current slate of insurers may have plans that you are not offering.

We can help you cut through the noise and find plans that may be a better fit for your organization.

It is important to keep in mind that a lower premium does not mean it’s the best deal. Some lower-cost plans may have narrower networks, which could result in some employees losing access to their regular doctors.

That said, there’s been a trend towards so-called “high-performance,” narrow provider networks that aim to reduce costs while maintaining efficiencies and quality of care.

Other cost-saving measures

Insurance carriers have been trying out new approaches to controlling costs, while improving health outcomes for their plan enrollees. Money spent up front on quality health services can yield future savings if the patient needs less treatment.

Some insurers and self-insured employers have been able to generate savings of 5 to 15% by employing:

Tiered networks — These health plans sort providers into tiers based on their cost and, often, quality relative to other similar providers who treat comparable patients. Providers with higher quality and lower cost are typically given the most-preferred tier rankings.

Centers of excellence — Many self-insured employers and more health plans are also contracting with “centers of excellence.” While there is no specific definition of a COE, these providers deliver positive patient outcomes, lower costs, raise member engagement and have high rates of patient satisfaction.

Often, an OEC may have a specialty, like a chronic disease or a specific service such as radiology. Working in tandem with a clinical analytics vendor, payers will connect members with health systems that demonstrate high performance in these areas.

Referral management — More health plans are also starting to use referral management software to improve efficiency and trust in care coordination.

These systems synchronize patient data transmission from one physician to another, and also to the patient. A referral management system aims to facilitate good communication between the consultant, specialist, health care provider and the patient.

The system increases trustworthiness and transparency of treatment and diagnosis, and decreases inefficiency in care coordination and operational arrangements.

The above measures can be applied across the care continuum — hospitals, primary care, specialty groups, post-acute providers and ancillary care — while maintaining access and quality of care.

The takeaway

Getting the cost equation right will be a challenge in the coming years as premiums are expected to rise at a faster clip than they have been in the last five years.

Talk to us about finding health plans that are offering different structures for addressing costs while also improving care for your workers.

Many Injured Workers Feel Unsupported, Frustrated by Claims Process

A recent study has found that injured workers are often left feeling frustrated and fending for themselves after they file a workers’ compensation claim.

The survey of injured workers by researchers at the University of Waterloo in Ontario, Canada found that workers reacted in a number of ways when experiencing “procedural” unfairness, frustration in how their claim is being handled, or poor communications from their claims adjuster or employer. Some give up, some react confrontationally, others quit.

The study confirms what other studies have shown: Employers need to be actively involved in helping workers navigate the workers’ comp system, keep in touch with them to lend assistance and provide support, including a feasible return-to-work program.

Otherwise, they risk having a disgruntled injured worker who may take longer to recover or secure the services of a lawyer. And once lawyers enter the picture, the more likely it is that their injury will drag out and the cost of the claim will increase substantially.  

The claims process can be confusing and unfair to injured workers. The amount of money they receive when they are not working and on the mend is less than their paycheck, and poor communications often leave them languishing and wondering when they can return to work.

Negative feelings

Many claimants have a number of negative emotions when embroiled in the workers’ comp claims process, including feeling:

  • Confused,
  • Angry,
  • Frustrated,
  • Unsupported,
  • Abandoned
  • Disappointed, and
  • Wary.

Others did report some positive emotions, including determination and optimism.

Issues that caused negative feelings include:

  • Uncertainty about how to access work compensation programs.
  • Reluctance to speak up about their claim for fear of losing their jobs.
  • Not receiving adequate modified work so they can return to work early.
  • Receiving inadequate medical care.
  • Their employer trying to suppress the claim.
  • Unresponsive claims adjusters.

What you can do

Throughout the recovery process, communication is the key. Maintaining contact with your employee and keeping in touch with the attending physician about available work will help reduce anxiety about returning to work.

For many workers that may mean modified work with restriction to avoid reinjury. You may also consider having them work from home, if feasible.

Encourage an injured employee to follow through with recommended care to avoid long-term complications whenever possible.

If your worker is not getting a response from their claims adjuster, offer to assist them.

Check in with your worker regularly and let them know their colleagues miss them and are hoping they’ll soon be back on the job.

Is Health Plan Self-Funding Right for Your Firm?

As group health costs continue climbing and more employees struggle with the cost of premiums and out-of-pocket expenses, some employers are starting to take a second look at self-funded, or partially self-funded plans.

These plans give employers more skin in the game and the ability to better address cost drivers and tailor their offerings to fit the needs of their employees.

But while the plans can save both employer and their workers money, they are not for every organization. Plus, there is a degree of risk as a few serious health issues among group participants can blow open claims costs.

Small employer considerations

While medium-sized and large organization are more apt to self-fund due to their resources, 21% of employers with three to 199 plan participants were self-funded in 2021, according to a study by the Kaiser Family Foundation. That’s compared to employers with:

  • 200 to 999 plan participants: 63%
  • 1,000 to 4,999 plan participants: 86%
  • 5,000 and more plan participants: 87%

Recently, insurers have been trying to address small and mid-sized employers’ concerns about risk and costs by rolling out “level-funded” plans. These vehicles provide a lower level of self-funding with a stop-loss insurance program that has lower attachment points than typical plans.

For level-funded plans, the insurer estimates the employer’s expected monthly expenses, which include:

  • A portion of the estimated annual cost for benefits,
  • The stop-loss protection premium, and
  • An administrative fee.

The employer pays the above to the insurer every month. If, at the end of the year, claims were significantly higher or lower than expected, there will be financial reconciliation between the employer and the carrier.

These level-funded plans differ from fully self-funded plans, where the employer assumes direct financial responsibility for the costs of enrollees’ medical claims. The employer will usually contract with a third party administrator or insurer to handle claims and provide administrative services for the plan.

Employers may purchase stop-loss coverage to protect against catastrophic claims.

Stop-loss basics

While these plans are called self-funded, there is still a portion of the costs that is insured to protect against catastrophic claims or unexpectedly high utilization.

There are different types of stop-loss insurance that pay the cost of claims at a certain attachment point, when plan, individual or claims spending exceeds a designated value:

Specific stop-loss coverage — This policy provides protection for the employer against a high claim on any one individual. This is protection against abnormal severity of a single claim, rather than abnormal frequency of claims in total.

Aggregate stop-loss coverage — This policy may limit the total amount the plan sponsor must pay for all claims over the plan year.

The benefits

Customization — Self-funded plans let employers customize their plan to meet the needs of their workforce.

Cost control — Self-funded plans only pay the actual costs, as opposed to fully insured plans where the premium goes towards the expected health care costs the insurer has forecast, plus its overhead, reserves, profit margin, and more.

Access to claims data — The employer gets detailed access to claims costs, so they can see what claims are driving costs. By looking at claims and plan participant needs, the employer can better decide which benefits to provide, enhance or remove if they are not being used.

Disadvantages

Compliance — Since the employer will be paying for the claims, they will be responsible for fiduciary and compliance issues.

Cash flow — The plan will need to have sufficient money going into its accounts regularly to pay for claims as they arise.

Volatility — Medical outlays can be unpredictable. A spate of high-cost claims can wipe out any potential savings.

The takeaway

If you’re fed up with rising group health plan premiums, talk to us about self-funding. We can review your current insurance arrangement and your plan costs to help you decide if it’s right for you.

How to Coax Disengaged Employees to Sign Up for Health Coverage

One of the most difficult aspects of annual open enrollment is reaching workers who are disengaged from the process and never bother signing up for your group health plan and other benefits they could take advantage of.

While employers shoot for maximum employee enrollment, there are always those employees who for a multitude of reasons never take the first step of signing up for benefits. These workers are likely going uncovered for their health insurance and risk serious outlays if they have to see a doctor or go to the emergency room.

They also miss out on preventative services that insurers are required to provide without cost-sharing and that can help them maintain their health.

This disengagement is more typical with younger workers, who may feel that the extra expense for their share of their health plan premium isn’t worth it since they are young and healthy. A recent study, the fifth annual “HSA Bank Health & Wealth Index,” noted that targeted communications to millennials and Gen Zers are key to sparking their interest.

One way to do that is by focusing on pending life events that younger-generation workers may be encountering:

Marriage and children — Employers can focus their messaging to these generations of employees by highlighting these major life milestones and the importance of having health insurance in place.

Both of these events should be a wake-up call that it’s time to get serious and purchase health insurance to either cover their spouse or impending children. Childbirth is expensive and newborns require numerous doctor’s visits and vaccinations in their first year and beyond.

Turning 26 — This is the age that individuals are no longer allowed to be covered by their parents’ health insurance. Young workers will often forgo their employer’s health plan as they are still covered by their parents’ plans.

They may not be aware that this is the cut-off age. If you have Gen Z workers, you should consider sending out e-mail blasts to them about this law and that if they are turning 26 in the coming year, they’ll need to find new coverage other than their parents’.

Health savings accounts

There is one group of employees that is more engaged in their health insurance than any other, according to the Health and Wellness Index: Those who have health savings accounts that are linked to an HSA-eligible high-deductible health plan.

Also consider that one in three employees are uncertain about their ability to cover future health care expenses. HSAs, if used properly, can provide the peace of mind and the funds to cover those costs. 

HSAs are savings accounts that allow your employees to put a portion of every paycheck into the account to bank for future medical expenses. These accounts can be kept for life and transferred to new employers. They are funded with salary that has not yet been taxed and the funds in the account can be invested, much like a 401(k) plan.

The study recommends targeting your communications to the disengaged by appealing to the traits that most HSA users have:

Spenders — This group of HSA owners will use most of the funds in their accounts to pay for qualified medical expenses.

They want information that helps them get the most bang for their buck. You can do this by sending them lists of eligible expenses and directing them to online technology that helps them get reimbursed.

Savers — This group doesn’t touch their HSA balances, even for current medical expenses. Instead, they prefer to use their account to save for future expenses, even in retirement.

They are interested in tools to track expenses not paid from their HSAs and direct deposits for self-reimbursement.

Investors — This group of employees are also savers. They seek to maximize growth of their HSAs by investing the funds to grow them even more.

They are interested in information that can help them make good investment decisions and changes. Providing them with timely advice can help them start an HSA and continue investing in it in the future.

Employees and Employers Save with Cafeteria Plans

As health care costs continue rising and employees are being asked to shoulder more of the expense burden, you can help them by offering a tax-advantaged plan that allows them to save for medical expenses.

These cafeteria plans, which are governed by Section 125 of the Internal Revenue Service Code, allow your employees to withhold a portion of their pre-tax salary to cover certain medical or childcare expenses. Employees can save an average of 30% in federal, state and local taxes on items they already pay for out of pocket.

Because these benefits are free from federal and state income taxes, an employee’s taxable income is reduced, which increases the percentage of their take-home pay. 

The plans benefit employers, as well. Since the pre-tax benefits aren’t subject to federal social security withholding taxes, employers don’t have to pay FICA or workers’ comp premiums on those payments. A cafeteria plan can save employers an average of almost $115 per participant in FICA payroll taxes.

Types of cafeteria plans

Premium-only plan: POP plans allow employees to elect to withhold a portion of their pre-tax salary to pay for their premium payments. Most companies currently have this set up through their payroll provider. A POP plan is the simplest type of Section 125 plan and requires little maintenance once it’s been set up through your payroll.

Flexible spending account: With an FSA an employee pays — on a pre-tax basis through salary reduction — for out-of-pocket medical expenses that aren’t covered by insurance (for example, annual deductibles, doctor’s office copayments, prescriptions, eyeglasses and dental costs). 

Dependent care flexible spending account: The dependent care FSA is an attractive benefit for employees who pay for childcare or long-term care for their parents. Employees may hold back as much as $5,000 annually of their pre-tax salary for dependent care expenses, which include expenses they pay while they work, look for work or attend school full-time.

How an FSA works

Before the start of the year, employees estimate how much they expect to spend on medical expenses and dependent care over the course of the year. 

Employees should be careful to not put too much into the account. (They can carry over $500 in unused funds from the prior year into the new year, but any funds in excess of that would be forfeited.) 

Whatever amount they choose to deduct for the year will be deducted on a pro-rated basis from each paycheck and deposited into their FSA. 

On or after the first day of the plan year, an employee is restricted from changing or revoking the Section 125 agreement with respect to the pre-tax premiums until the plan year has ended, unless a change in family status occurs.

Employees pay out-of-pocket expenses upfront and then submit a claim and documentation to the plan administrator. They are then reimbursed for their expense in the form of a check or account transfer.

Finding Health Cost, Insurance Data Still a Struggle for Patients

Despite newly enacted federal transparency rules for hospitals and health plans, some large hospitals are still not posting the required price lists for their services, according to a recent report.

The Centers for Medicare and Medicaid Services’ transparency rules were implemented to shine the light on what hospitals charge for their various medical services, the negotiated rates insurers have with health plans and the out-of-pocket costs enrollees can expect to pay for these services.

The rule has taken effect in stages and hospitals were the first required to comply, but the report finds their efforts have fallen short. Insurers were required to start posting negotiated rates for their health plans starting July 1, 2022, but currently much of that information is hard to find and decipher.

That means, for now, it may be difficult for plan enrollees to shop around for procedures that they will pay for partially or fully out of pocket. But hopefully, that should change as more rules take effect.

The non-profit Patients Rights Advocate found a number of omissions when recently analyzing price data for seven hospitals in Florida and Texas that are owned by two major health systems: Ascension Health and HCA Healthcare.

The transparency rule requires hospitals to publish machine-readable price lists and display rates for medical services in a format that allows consumers to comparison shop, meaning they are published online.

Insurers for their part are required to post their negotiated rates with providers in machine-readable format.

The effect on health plan enrollees

Health plan enrollees that want to shop around for medical services may currently find it difficult. While the data is posted on the insurers’ and hospitals’ websites, it’s hard to access and decipher since each entity handles the data differently.

Another report, by National Public Radio, highlighted the hurdles a health plan enrollee may encounter if they were trying to find their insurance carrier’s negotiated price for an MRI:

Locating the files — First they have to find the files, which are unlikely to be posted in an easy-to-find section of the insurer’s website. They may have some luck by searching on Google and typing in their insurer’s name, plus “transparency in coverage” or “machine-readable files.” Maybe.

Finding their plan — If they succeed with that approach, next they need to find their plan in all of those files. The files are supposed to have a table of contents, but insurers can have hundreds, if not thousands of different plans, some specific to just one employer. They’ll have to find their plan among those plans, many of which will have similar names to theirs.

Deciphering the data — If they are able to find their plan and download the information, they will have to decipher the various codes for the service for which they are trying to find a price. Each procedure has a specific service code, which the enrollee may not have.

It may get easier soon

The process may become easier on Jan. 1, 2023, when a new rule that requires insurers to provide apps and other tools to help policyholders estimate costs for visits, tests and procedures takes effect.

At that time, carriers will be required to make available online, or in hard copy upon request, patient costs for a list of 500 common shoppable services. That includes things like knee replacements, mammograms, X-rays and MRIs, to name just a few.

In 2024, insurers must add all remaining shoppable items/services to their comparison tools.

Remote Workers Find Benefits Selection Difficult

A new survey has found that remote workers have a more difficult time choosing benefit plans that are the right fit for them compared to their colleagues who work on-site or have hybrid remote-office schedules.

The poll by MetLife found that nearly half of remote workers struggle to understand their employee benefits. As a result, these workers may end up choosing plans that do not meet their needs and they may also spend more time on trying to choose their benefits.

The survey results also reflect the challenges that employers continue to face in meeting their employees’ increasingly diverse needs and that they need to improve their communications, particularly with staff who are working remotely full-time — and especially if they are in another state.

It’s crucial that employers get this right in light of the importance these workers place on their employer-sponsored benefits.

The survey of 1,000 full-time employees at companies with at least two employees found that 61% of workers said that employee benefits are a significant part of what’s keeping them at their company. Those figures were even higher for work-from-home caregivers with children (72%) and millennial and Gen Z workers (67%).

Widespread concern

There are a number of benefit issues that concern remote workers. The survey found that:

  • 45% of remote workers are struggling to understand their employee benefits, compared to 29% of their colleagues that work on-site.
  • 55% of remote workers are highly anxious about their finances, compared to 46% of hybrid and on-site workers.
  • 55% of telecommuters spend over one hour per week worrying about their benefits, compared to 37% of on-site and hybrid employees.

In fact, 65% of remote workers said that a better understanding of open enrollment would help make them feel more financially secure. That’s bad news for those employees, as their lack of knowledge can result in choosing the wrong plan, which may end up costing them more than necessary. As a result:

  • Remote workers are twice as likely to say they enrolled in the wrong type of benefits last year.
  • 57% of remote workers require more information to make the right benefit choices, compared to 47% of hybrid and on-site workers.

What you can do

Without clear communication, employees are less likely to understand and utilize their benefits.

Set up virtual information sessions where plan options, including key defining details and specific benefits, are outlined and covered clearly.

Depending on how many employees you have, you may want to consider offering a few sessions for them to choose from, to ensure they can all make it. If not, record the original session for employees to watch later if they can’t attend.

Also, you should make sure your human resources department is available for one-on-one questions. Some of your employees may need additional help in choosing a plan. You may want to consider offering phone or video chat meetings for them in case you need to show them documents and graphics.

Get Communications Right for Open Enrollment

As group health plan open enrollment looms for most companies, communicating your offerings to your staff is key to getting as many of them as possible to sign up for coverage.

That requires a solid strategy aimed at helping your employees understand their choices and the financial implications of them. Most importantly, you want to reach those employees who didn’t sign up last year and stress the importance of health insurance.

To achieve maximum participation, your communications in the run-up to open enrollment are crucial both in terms of how and what you are messaging. A robust strategy includes: 

Simple messaging

Simplify the process of deciding which health plan to choose in a series of snappy messages that are easy to understand. One of the best ways to get the point across is by using vivid examples, preferably with graphics.

Explain the basics — Focus on your employees’ costs and coverage considerations:

  • Their share of premium,
  • Their deductible, copay or coinsurance,
  • If their doctor is in the plan’s network,
  • If there are any drugs they need for any ongoing health issues.

Help them with the math — Many people have trouble grasping the math. They may look at a low premium without considering the cost on the back end in terms of a higher deductible and/or other out-of-pocket expenses.

Break expenses down with different health care scenarios and the associated out-of-pocket costs based on the plan they have.

Explain coverage for big-ticket items— This includes costs associated with things like a knee replacement or cancer treatment. Humanize the examples by creating a persona and how their health plan covered treatment.

Use creative materials — Provide vivid documentation that includes a lot of bullet points and quick, punchy messages.

Use sidebars to cover important information they need to know, like an increase in deductibles or copays, or that a plan has overhauled its doctors’ network.

Dispensing sage advice

Help your employees by providing guidance on choosing the right plan:

  • Provide clear and direct advice.
  • If an employee is getting family coverage, it’s important they discuss possible choices with their spouse. You can assist by sending hard copies of the enrollment materials to their home.
  • Provide tools for comparing plans to see what their costs would be under each option.
  • Highlight wellness and virtual benefits, which are growing in popularity. Provide details on how to sign up and access these benefits.

Staggering your communications

Step up announcements to build interest by focusing on:

New or changing plans — Use these blasts to let them know about any new benefit programs you are offering or plans you may be discontinuing. You can point them to resources on how the benefits work and any demos. You can also announce changes to plan out-of-pocket costs or deductibles ,or if a plan has beefed up coverage.

Timely communications — These should include reminders about open enrollment and checklists on what your employees should do before it starts.

Once open enrollments starts, you’ll need to send out messaging to get stragglers to act.

Popular programs — If you are adding a plan that your staff has requested, make sure to blast out a few announcements to the troops.

The takeaway

Communication is a key component of a successful open enrollment. You can follow the above advice to generate interest and to help your staff pick plans that are right for them.

Employee Assistance Programs in Times of Need

The COVID-19 pandemic has brought mental health to the forefront for many people, as they tried to cope with abrupt changes to their work and social lives, isolation, fear of getting sick and losing loved ones to the disease.

Even now, as the pandemic ebbs, the mental health crisis has not. A recent National Safety Council survey of 1,600 employers and 7,000-plus workers found that half of large employers saw an increase in mental health or impairment-related absences and incidents. Meanwhile, mental health has become American’s biggest health concern, overtaking COVID-19, according to a study by Ipsos.

The number of Americans who said COVID was one of the biggest health concerns in the U.S. dropped from 68% in 2021 to 43% in 2022. Meanwhile, more Americans rated mental health as one of their top health concerns, rising from 35% in 2021 to 51% over the same time frame.

Fortunately, employers can step up their efforts to help employees dealing with mental health issues by offering an employee assistance program (EAP). Many employers already have. According to the NSC study, 25% of organizations with an employee assistance program implemented that program during the pandemic, while 66% expanded their offerings.

If you do not already have an EAP, you may want to learn more about them as it can be crucial to helping struggling workers.

What’s an EAP?

An EAP is an intervention program designed to help employees resolve personal problems that might be affecting their work performance. Many employers make EAP services available to employees’ family members, as well.

These programs can help cover the costs of counseling services that employees seek out. An EAP provides outside counselors, resources, and referrals to assist employees and their family members. Any EAP benefit received by employees or family members remain confidential. Employers do not get to know who is utilizing the service, what the reasons are for, or how often employees call.

Typical services include:

A study by the University of Warwick in the U.K. found that satisfied workers are 12% more productive and provide better customer service than their less happy peers. The study found that employers who implement EAPs experience:

EAPs also help managers to become more effective. They can help them develop skills in consulting with employees, managing workplace stress, maintaining drug-free workplaces, responding to crises, and helping employees achieve an appropriate work-life balance.

EAP options

Employers have several options for establishing EAPs.

They can run them with their own staff or outsource them to third party providers. Providers can be hired on a fee-for-service basis or for a fixed fee.

They can be arranged by single employers, groups of small employers banding together, or by unions. Some employers or unions even train employees to provide peer counseling to their fellow workers.

EAP providers should meet the standards set by the Employee Assistance Professionals Association. These include standards for program design; management and administration; confidentiality; direct services; drug-free workplace and substance-abuse professional services; partnerships; and evaluation of the program.

The takeaway

Besides COVID-19, employees are subject to the stresses of day-to-day living, sudden illnesses or deaths of loved ones, natural catastrophes and work. Family members can develop substance-abuse problems, parents grow old and need care; unexpected financial shocks occur; and marriages often deteriorate.

By implementing an EAP, an employer can help make these problems, and the shock of a natural disaster, a little easier for their employees to manage.

EAPs can help retain good employees, make them more productive, and make their lives a little better. In turn, this can make a business more profitable and a better place to work.

How to Budget for Your Group Benefits Plan

As the labor market remains tight and businesses struggle to find staff, more small firms are starting to offer employee benefits, particularly health coverage.

But the costs of coverage can be daunting and many employers worry about whether they can afford benefits programs and struggle to set a budget that won’t deplete or severely dent their profits.

Typically, the most expensive and most important benefit is health insurance. For most people, purchasing health coverage on their own is prohibitively expensive. They will gravitate toward employers that offer affordable health plans with networks that include their doctors and provide reasonable coverage.

If you have more than 50 full-time employees, the Affordable Care Act requires you to provide your employees with coverage that is affordable and covers a set of essential benefits without cost-sharing. Not offering this coverage can result in penalties.

On the other hand, companies with fewer than 50 full-timers are not required to offer coverage. That said, 53% offered health benefits in 2020, including 48% of businesses with three to nine employees.

However, there are options for those who want to offer it. For example, employers with fewer than 25 employees may qualify for federal tax credits if they offer health insurance.

Don‘t game the system

Firms that should be covering their employees under the ACA sometimes try limiting the amount of shifts they give employees to avoid hitting the hours-worked threshold that requires them to offer coverage.

But that’s not a good strategy if you want to keep your employees happy and avoid high turnover. Think of an employee benefits plan as a need-to-have, not a nice-to-have. Also think of it as an investment in the future of your business, your staff’s lives and your community.

Getting it right

Finding room in your budget for group health insurance can be especially difficult when you’re just starting out or your profit margins are thin. According to a 2021 Kaiser Family Foundation (KFF) report, the average annual health insurance premium for small businesses (those with up to 199 employees) was:

  • $7,813 for single coverage (the average employer contributed $6,485, or 83% of the premium, while workers covered the rest).
  • $21,804 for family coverage, of which employers contributed an average of $13,737, or 63%.

The considerations

The factors employers need to consider when determining the budget include:

Employer premium contributions. You should expect to pay 50% or more of the premium, for two reasons:

  • Most insurers require it.
  • Federal tax credits are available only to small employers who pay at least that much.

To get an idea of what your baseline cost will be, multiply the numbers from the KFF report by the 50% requirement. Keep in mind that premiums tend to rise each year, so your actual cost will be higher even if you limit your contribution to 50%.

Caution is called for when deciding how much to require employees to contribute. Setting their contribution too high may discourage workers from participating. If employee participation falls below 70%, you may not be able to purchase the plan you want.

Your employee profile. The ACA prohibits insurers from raising premiums based on most employee characteristics. However, it does permit them to raise premiums based on employees’:

  • Age
  • Tobacco usage
  • Residence location

A business made up of older employees, most of whom smoke, will pay more than one whose workforce is younger and doesn’t smoke.

The type of plan you pick.The ACA requires state health insurance marketplaces to offer four tiers of coverage. These tiers differ based on the premium cost and the percentage of health care costs the plan pays for:

  • Bronze (least expensive; insurer pays 60% of health care cost, employee pays 40%)
  • Silver (insurer pays 70%, employee pays 30%)
  • Gold (insurer pays 80%, employee pays 20%)
  • Platinum (most expensive; insurer pays 90%, employee pays 10%)

You aren’t limited to offering just one tier. You can give your employees a choice of plans in different tiers and still hold your per-employee cost constant.

There are also four types of plans:

  • Exclusive provider organization (EPO) — A plan where coverage applies only if employees use health care providers within a specified network, unless there is an emergency.
  • Point of service (POS)— A plan where the employee out-of-pocket cost is reduced if they use health care providers within a specific network, but referrals to specialists are required.
  • Preferred provider organization (PPO) — Similar to a POS plan, but employees can see specialists without a referral and see out-of-network providers for an additional cost.
  • Health maintenance organization (HMO) — Coverage applies only if employees see health care providers who work for or are under contract with the HMO, unless there is an emergency.

EPO, POS and PPO plans tend to cost more than HMO plans, but they offer employees wider choices of health care providers.

The takeaway

Some businesses simply cannot afford to provide their employees with health insurance and paid leave. Those that can, however, should view these benefits as investments in the business. They make employees’ lives more comfortable, and good employees who are comfortable tend to stay.

Finding the budget space isn’t easy. It takes careful strategic planning, and it may require either cost-cutting in other areas, raising prices or accepting lower profits.

However, many successful companies have found offering benefits to be worth the effort and cost. For them, it has paid off because it has enabled them to attract and keep the talented employees who make their businesses successful.