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Small Business Employee Benefits and HR Blog

How Small Businesses Can Deal With Double-Digit Premium Increases

August 20, 2014
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Fotolia_59252884_SSmall businesses are facing double-digit premium increases at renewal time this year. This is especially true for small businesses who renewed early last year to avoid premium increases due to the Affordable Care Act.

Small businesses can mitigate their health benefits costs by not renewing their group health insurance plans and transitioning employees to individual health insurance paired with a premium reimbursement plan. This article discusses why this approach works to control health care costs and provide a valued employee health benefit.

Small Businesses Facing Double-Digit Premium Increases

The cost of health care has been on a steady increase over the last decade, and as such, group health insurance is too expensive for small businesses and their employees. Additionally, expected rate increases at renewal time leave financial uncertainty for small businesses.

For example, small business health insurance costs have nearly doubled since 2009, with 91 percent of small businesses reporting increases in their health plan at their most recent health insurance renewal.

Back in February, a report from The Centers for Medicare & Medicaid Services (CMS) found that approximately 11 million small business employees, over 65 percent, will see health insurance premium rate increases due to the ACA.

While the ACA is to blame for some of the small business premium increases, group health insurance premiums have been increasing well before the ACA came into effect. Between 1999 and 2013, group health insurance premiums increased by 168 percent to $5,884/year for a single employee or $16,351/year for a family.

The bottom line is that as a result of these premium rate increases, most small businesses will drop traditional group health insurance and look to alternative ways to offer more sustainable health benefits.

How Small Businesses Can Deal With Double-Digit Premium Increases

Small businesses can mitigate their group health insurance costs with a simple solution: do not renew the group health insurance plan. Instead, transition employees to individual health insurance and adopt a premium reimbursement plan.

By implementing a premium reimbursement plan, employers reimburse employees tax-free for individual health insurance policies. Employers fix their costs on a monthly basis, and employees can choose a health insurance policy that best meets their health and financial needs.

Additionally, individual health insurance costs up to 60 percent less than group health insurance, making premium reimbursement an effective solution for employers who wish to cut down on healthcare costs.

To transition employees from group health insurance, the employer first needs to decide how much they will contribute toward employees’ health insurance expenses. This allowance, or “defined contribution,” can be the same for all employees, or it can differ depending upon employee class and/or family status.

To set up a compliant reimbursement program, employers should follow five easy steps:

  1. Set up a formal premium reimbursement plan

  2. Use reimbursement software to help make compliant administration of the plan easy

  3. Work with a health insurance broker or agent to help employees choose a plan

  4. Understand the compliance requirements with the IRS, ERISA, HIPAA, ACA, and other applicable rules

  5. Educate employees about the reimbursement program and the advantages of individual health insurance

With group health insurance renewals on the rise and many small businesses facing double-digit premium increases, employers are facing enormous cost challenges and are seeking cost-effective alternatives to group health insurance. The emerging solution is premium reimbursement for individual health insurance.

What are your thoughts on the rising costs of group health insurance? What do you think the solution is? Leave a comment below.

 

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