Health insurance renewal time is upon us, and whether you’re researching more cost-effective health plans or researching small business health benefits for the first time, a common question is, “How much does it cost to provide health insurance to employees?”
The cost of providing health insurance to employees depends on a few factors:
The insurance carrier
The type of plan you choose (ex: PPO, HMO, etc.)
The network of providers
Your contribution strategy
The demographics of your employees (your "employee census”)
If you’re still in research mode and not quite ready to get detailed quotes from a health insurance adviser or health benefits company, you can learn a lot about the cost of employee health insurance by understanding national averages and basic coverage concepts.
Here is a concise breakdown of the cost of providing health insurance to employees.
Cost of Providing Health Insurance Coverage
When an employer provides health insurance coverage to employees, the business purchases a plan (or plans) to cover all eligible employees and dependents. This type of coverage is commonly called a “group health insurance plan” or “employer-sponsored health insurance.”
In 2015, the average premium for single coverage is $521 per month, or $6,251 per year. The average premium for family coverage is $1,462 per month or $17,545 per year (source).
These amounts are generally split by the employer and employee. On average, employers pay:
$5,179 annually (83 percent of the premium) to cover a single employee
$12,591 annually (72 percent of the premium) to cover a family
The remaining amount is covered by employees, typically through a payroll deduction.
Additionally, premium costs with a group health insurance plan may change annually. In fact, this year over 90 percent of employers are seeing rate increases at renewal time, with about a quarter seeing double-digit premium increases.
To minimize or reduce fluctuation in premium amounts, and to control the cost of benefits from year to year, one option is to change contribution strategies.
Controlling Costs with a Reimbursement Strategy
Instead of purchasing a group health insurance policy and paying premiums set by the insurance company, an alternative strategy is to define a contribution amount toward employees’ health insurance. With this type of reimbursement plan, the business:
Sets any contribution amount to employees’ health insurance costs
Allows employees to purchase a health insurance plan (either through a private exchange or the health insurance Marketplaces)
Reimburses employees for their premiums, up to their available balance amount
The cost of health benefits with a reimbursement strategy? Any amount the business can afford.
That being said, many businesses look at the cost of the individual health insurance policies the employees will be purchasing to help set the contribution amounts. In 2016, the cost of individual health insurance for a 40 year old on a Silver plan averaged $351.02 per month or $4,212.24 a year.
Interested in learning more about health insurance reimbursement plans? Check out our free Comprehensive Guide to the Small Business HRA.
On average, the combined cost of providing group health insurance is $6,251 per year for single coverage (2015) or $17,545 per year for family coverage.
To offer more affordable health benefits, one solution is to adopt a defined contribution strategy where employees purchase individual health insurance and are reimbursed by their defined contribution allowance.
In a time of steep annual rate increases for group health insurance, a defined contribution model offers cost predictability and access to quality health insurance coverage.
Do you have questions about how much it costs to provide health insurance to your small business employees? We’d be happy to answer. Leave a comment below.