Offering group health insurance is getting more expensive, causing many employers to wonder if offering health benefits will become 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.
So what’s a small business owner to do when offering health insurance seems unrealistic given budget constraints?
Below we’ll discuss the healthcare costs small organizations can expect when offering group health insurance and how organizations can control costs with a health reimbursement arrangement (HRA).
How much do group health insurance premiums cost?
According to the Kaiser Family Foundation (KFF), annual group health insurance premiums average around $7,739 for single coverage and $22,221 for family coverage.
29% 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 is about $463 to $926 per month.
Premiums run higher for certain health insurance plan types, like preferred provider organization plans (PPO) 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 for 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. An insurance company typically requires at least 70% of employees to participate in a group health plan.
How much time does it take to administer a group health insurance plan?
While many organizations are aware of the cost of offering a group health plan, they are less prepared for another factor—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 most significant 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
1. Ongoing regulatory changes the organization must track
For many small businesses, having a full HR staff to tackle the administrative tasks of offering a group health insurance plan isn’t an option. That means an already busy employee must become the go-to person to educate staff on coverage options, who is eligible for coverage, what local facilities are in- or out-of-network, and what is covered under the type of plan—and stay on top of rule changes.
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.
2. Complicated communication processes
Group health insurance plans also require businesses to undergo a complicated communication process between employers, the insurance company, and their employees.
Employers are often 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.
3. Painful yearly renewal processes
Finally, annual benefit renewals that come with group health insurance plans are complex and require a lot 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 plan 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 a traditional group plan 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 healthcare 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 not to offer a benefit at all. However, 88% of job seekers say they would consider working for another company for less money if their current employer didn’t provide health coverage to employees.
Turnover can be a truly significant cost. Some studies predict that every time an organization replaces a salaried employee, it costs six to nine months’ salary on average. These costs typically depend on how hard it is to retrain and replace the skills. But it’s generally in the employer’s interest to offer a health benefit that is attractive to employees.
How small organizations can control their health benefits costs with a QSEHRA
Unsurprisingly, many small organizations decide they can’t afford the financial and administrative costs that come with group health insurance. 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 find that HRAs are one of the most effective ways to offer a quality health benefit that fits a tight budget. With a tax-advantaged HRA, instead of paying employee premiums, the organization provides employees a set 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. Employees typically have far more insurance plans to choose from, allowing them to purchase a plan that works best for them, increasing overall employee satisfaction.
The perfect HRA for small businesses is a qualified small employer HRA (QSEHRA). QSEHRAs are for employers with less than 50 employees. All W-2 full time-employees are automatically eligible for a QSEHRA benefit. Once they purchase their individual health insurance policy, they can begin getting reimbursed for their healthcare expenses.
Unlike other HRAs, QSEHRAs have annual maximum contribution limits set by the IRS. But since there are no minimum contribution limits, small businesses are flexible in what amount they can choose. But the flexibility doesn’t end there.
You can offer a QSEHRA without any participation requirements, so any amount of your employees can be enrolled—even if you only have one or two employees. Also, if you have part-time employees, they are eligible to use the QSEHRA benefit. However, if you decide to do so, part-time employees must receive the same allowance amount as your full-time workers.
Best of all, unlike group health insurance plans that require hours of administration, HRA administration software like PeopleKeep enables your QSEHRA to be managed in minutes per month.
Whether it’s customizing plan documents, reviewing reimbursement documentation, or navigating tax regulations and compliance, PeopleKeep will guide small employers through every step of managing their QSEHRA benefit.
Group health insurance costs can be incredibly 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.
With a QSEHRA, employers can avoid group health insurance and win big with a tax-advantaged and personalized benefit for their employees’ benefits packages. If you think a QSEHRA is right for your organization, PeopleKeep can help. Schedule a call with one of our benefits advisors to see how an HRA can work for you.
This post was originally published on November 3, 2020. It was last updated on May 20, 2022.