If you're a small business who is tired of overpaying for health insurance, you are not alone. Over the next three years, 60 percent of small businesses are expected to cancel group health insurance coverage in favor of employer-funded individual health insurance. The primary reason? Cost.
What is Employer-Funded Individual Health Insurance?
With employer-funded individual health insurance, a small business reimburses employees for their own individual policies purchased independent of employment. The reimbursement program is offered instead of providing a one-size-fits-all group health insurance plan. This gives employees the opportunity to pick their own plan, rather than paying for an expensive policy they didn't choose.
This approach is also referred to as premium reimbursement or "pure" defined contribution healthcare.
How Much Does Employer-Funded Individual Health Insurance Cost?
The simple answer is: employer-funded individual health insurance costs as much as the small business would like to contribute. It's 100% up to the employer.
Unlike traditional group health insurance, there are no minimum contribution requirements. The business sets monthly allowance amounts, and they can vary allowance amounts by class of employee.
For example, if a 10-person company decides to contribute $250/month, the total maximum cost each month would be 10 x $250, or $2,500.
In this example, $2,500 is the maximum monthly amount, although utilization is not always 100%. If an employee's health insurance premium is only $150/month, then the employer only reimburses $150/month.
That being said, some small businesses prefer to do a more detailed cost analysis taking into account how much employees will pay for their own health insurance, and comparing this to group health insurance.
To do a more detailed analysis follow these five steps:
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Step 1: Collect Employee Demographic Information
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Step 2: Use Employee Demographics to Gather Estimated Individual Health Insurance Costs for Each Employee (Remember to Factor In Their Premium Tax Credit Discount, If Eligible)
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Step 3: Collect Group Health Insurance Costs for Each Employee
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Step 4: Estimate Tax Penalties for the Business, if Applicable (Note: This Only Applies to Businesses with 50+ Employees)
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Step 5: Analyze the Results
Tip: Download these free worksheets to easily conduct a cost analysis of employer-funded individual health insurance.
