How to Calculate Cost Savings: Group Health Insurance vs. Premium Reimbursement

Written by: Christina Merhar
Originally published on July 24, 2014. Last updated January 19, 2017.

As small and medium sized employers evaluate health benefits, they consider two main approaches: group health insurance or reimburse employees for individual health insurance (aka premium reimbursement). One of the key decision-making factors is cost.Calculate_Savings_Flickr_reynermedia

This article outlines five steps to calculate the cost savings of group health insurance vs. premium reimbursement

Step 1: Collect Employee Census Information

First, collect employee census information including name, age, zip code, family size, and annual income.

Step 2: Gather Estimated Individual Health Insurance Costs for Each Employee

Using the employee census data, first gather estimated individual health insurance costs for each employee. Sample rates can be found through a health insurance broker, a premium reimbursement provider, or your state's Health Insurance Marketplace (ex: or

Next, calculate the premium tax credits for each employee. Use an online tax credit calculator (like this one) to calculate the discounts available to each employee. Remember, employees are eligible for a premium tax credit if they don't have access to employer-sponsored health insurance coverage and if they make less than 400% of FPL (that's up to $46,680 for an individual and up to $95,400 for a family of four in 2014).

To calculate the net cost of individual health insurance, subtract the premium tax credit from the employees' health insurance premium cost.

Step 3: Collect Group Health Insurance Costs for Each Employee

If the business has an existing group health insurance plan, use those rates. If the business does not have an existing group health insurance plan, use average group health insurance rates for your state or work with a health insurance broker for quotes.

Step 4: Estimate Tax Penalties for the Business, if Applicable

If the business has fewer than 50 employees, skip this step as the employer mandate and tax penalties do not apply.

If the business has more than 50 full-time equivalent employees, the next step is to calculate the employer shared responsibility fees for not offering group health insurance. The penalties start in 2015; however, there is transition relief available for businesses with 50-99 FTEs. For detailed instructions, see: Quick Guide to Calculating Employer Shared Responsibility Fees in 2015.

Step 5: Analyze the Results

Now it’s time to analyze the results. If the total cost of individual health insurance (plus any tax penalties from step 4) is equal to or less than the total cost of group health insurance, the switch to individual health insurance and premium reimbursement speaks for itself.

Example Cost Savings Chart

Here is an example cost savings chart for a 10-person business with five single employees and five employees with families.

Group Health Insurance Monthly Premiums


Individual Health Insurance Monthly Premiums


Shared Responsibility Payments

(Only for Employers with 50+ FTE Employees)


Monthly Savings with Individual Health Insurance


Annual Savings


Savings %


In the chart above, the cost analysis does not factor in the contribution percentages for the business and employees.

To take the analysis a step further, take into consideration the costs to both the business and employees. Here's an example for the same 10-person business. In this example, both the business and employees save 72% on health insurance costs for the same or better coverage on the individual market.

  Business Employees Total
Monthly Costs      
Individual Health Insurance & Premium Reimbursement $2,100 $899 $2,999
Group Health Insurance  $7,525 $3,225 $10,750
Monthly Savings with Premium Reimbursement $5,425 $2,326 $7,751
Annual Savings with Premium Reimbursement $63,827 $29,175 $29,176
Savings % 72% 72% 72%

What questions do you have about calculating the cost savings of group health insurance vs. individual health insurance and premium reimbursement? Leave us a comment below.

The Comprehensive Guide to the Small Business HRA 

Originally published on July 24, 2014. Last updated January 19, 2017.


Additional Resources

View All Resources