Offering group health insurance is getting more expensive, causing many employers to wonder if offering health benefits will become completely unsustainable within the next few years. This is especially true for small organizations with tighter budgets, fewer management resources at their disposal, and fewer employees to help meet the participation requirements for group health insurance plans.
All of these factors increase the total cost of offering a group health insurance policy beyond those already pricey premiums. So what’s a small business owner to do when health insurance costs seem unrealistic with the budget?
In this article, we’ll discuss the costs small organizations can expect when offering group health insurance, as well as how organizations can control their costs by offering health benefit alternatives like a health reimbursement arrangement (HRA).
How much do group health insurance premiums cost?
According to the Kaiser Family Foundation, annual group health insurance premiums average at around $7,470 for single coverage and $21,342 for family coverage.
67% of small organizations (defined in the Kaiser Family Foundation study as those employing under 200 workers), paid between 25% and 50% of the family coverage premiums, which comes to about $455 to $910 per month.
Premiums run higher for certain plan types, like preferred provider organization (PPO) plans and health maintenance organization (HMO) plans. Premiums are also more expensive in the Northeast and Midwest regions of the United States and in certain industries like transportation, communications, and utilities.
Of course, organizations can reduce their budget by implementing higher cost-sharing requirements on employees. However, adding these requirements increase the risk that eligible employees will decline participation in the plan. If too many employees choose not to participate, the organization may not be able to offer the policy at all. Most states require that at least 70% of employees participate in a group health plan.
How much time does it take to administer a group health insurance plan?
The cost to implement a group health plan includes another, less obvious cost in addition to premiums—the cost of time to administer the plan. For most small organizations trying to get as much done with as little staff as possible, the impact of this administration cost might even exceed the cost of the premiums.
Let’s go over the three biggest factors that make managing a group health plan time and labor-intensive:
- Ongoing regulatory changes the organization must track
- Complicated communication processes
- Painful yearly renewal processes
Ongoing regulatory changes the organization must track
For many small businesses, having a full HR staff to tackle the administrative tasks associated with offering a group health insurance plan just isn’t an option. That means an already busy employee must become the go-to person to educate staff on who is eligible for coverage, what local facilities are in- or out-of-network, and what is covered under the plan—and the rules can change.
Without someone watching these regulations full-time, it’s easy for some rules to slip through the cracks, making your plan out of compliance—which comes with hefty penalties up to thousands of dollars.
Complicated communication processes
Group health insurance plans also require businesses to undergo a complicated communication process between employers, the insurance company, and your employees.
Oftentimes employers are forced to become the “middleman” between the insurance carrier and employees, managing tedious and unorganized back-and-forth communication every time an insurance issue surfaces. This is time that would be far better spent focusing on your business.
Painful yearly renewal processes
Finally, annual benefit renewals that come with group health insurance plans are complex and require a great deal of time to complete. If claims employees made to the insurance carrier were expensive the previous year—if they’ve filed a higher than usual number of health insurance claims, for example—they’ll likely face cost increases or changes in terms.
You must then consider whether you will simply accept the changes, negotiate with the benefits provider, or work to identify new policies and programs that better match their budget and benefits goals. To do this, you may need to meet with new benefits brokers, which takes time.
If small organizations spend just four hours a month of one employee’s time managing benefits day-to-day, and five days during benefits renewal, that’s an additional 88 hours of the employee’s time that could have been used differently and perhaps more productively.
Group health insurance options are limited for small organizations
Cost and minimum participation requirements for group health insurance plans leave most small organizations with just one or two policies to choose from for all of their employees. Invariably, this means many don’t get the policy they want. Their health needs may not be covered, or they may not be able to afford a policy that would cover them.
Employees in this situation may choose not to participate in the policy, which in turn means your organization may not meet the policy’s minimum participation requirements, forcing you to not offer a benefit at all. Without a health benefit that’s valuable to them, employees are more likely to leave the company.
Turnover can be a truly significant cost. Some studies predict that every time an organization replaces a salaried employee, it costs 6 to 9 months’ salary on average. To be sure, these costs typically depend on how hard it is to retrain and replace the skills. But it’s typically in the employer’s interest to offer a health benefit that is attractive to employees.
How can organizations control their health benefits costs?
Unsurprisingly, many small organizations decide they can’t afford these costs. But simply going without health benefits isn’t the answer, as the increase in employee turnover and associated costs are even higher.
Many small organizations are finding that HRAs are one of the most effective ways to offer a quality health benefit that fits a tight budget. With an HRA, instead of paying premiums, the organization offers employees an annual or monthly allowance the organization can afford.
Employees get reimbursed, tax-free, for individual insurance premiums and qualifying out-of-pocket medical expenses up to the maximum allowance. The employer controls their health benefits costs, and employees typically have far more insurance plans to choose from, allowing them to purchase a plan that works best for them and increasing their satisfaction in the health benefit.
Best of all, unlike group health insurance plans that require hours of administration, HRA administration software like PeopleKeep enables the plan to be managed in minutes per month.
Group health insurance costs can be especially steep for small organizations, not to mention the cost of time that goes into administering the benefit. Given this, it’s easy to see why HRAs are becoming a popular alternative, as they empower employers to offer a much more flexible health benefit while keeping costs in check.
This post was originally published on November 3, 2020. It was last updated October 17, 2021.