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Small Business Employee Benefits and HR Blog

The Average Cost of Health Insurance for Small Business in 2017: Study

February 20, 2018

Small businesses continued to face cost increases for group health insurance in 2017, a report from the Kaiser Family Foundation reveals.

Kaiser's "2017 Employer Health Benefits Survey" found that annual group health insurance premiums for businesses with fewer than 200 employees totaled $6,486 for single coverage and $17,615 for family coverage.

That's a slight increase over the annual premiums of $6,429 for single coverage and $17,546 for family coverage in 2016. Overall, premiums for all group health insurance policies have increased 19 percent since 2012.

Perhaps as a result, the percentage of small businesses offering group health insurance fell to a historic low, according to a study from the National Federation of Independent Business (NFIB). Just 29 percent of businesses with fewer than 50 employees offered group health benefits in 2016, the most recent year for which data is available.

In this post, we'll review the most relevant findings from the study and explore how small businesses handle these cost increases—whether by dropping coverage or adopting personalized health benefits like the qualified small employer health reimbursement arrangement (QSEHRA).

Group health insurance premiums by plan type

Premiums varied according to the type of group health insurance policy. For businesses with fewer than 200 employees, high-deductible health plans (HDHPs) were the most affordable, while Preferred Provider Organization (PPO) plans were the most expensive.

The annual premium averages include:

  Single coverage Family coverage
Health Maintenance Organization (HMO) $6,700 $17,282
Preferred Provider Organization (PPO) $6,590 $18,137
Point of Service (POS) $6,136 $17,561
High-Deductible Health Plan (HDHP) $6,215 $16,809

Group health insurance premiums by U.S. region

The location of the business also affected costs. Group health insurance premiums in 2017 were most expensive in the Northeast, followed by the Midwest.

The annual premium averages include:

  Single coverage Family coverage
Northeast $7,001 $20,092
Midwest $6,792 $19,101
South $6,372 $18,038
West $6,861 $18,536

Group health insurance premiums by industry

Group health insurance premiums in 2017 were most expensive for businesses in the transportation, communications, and utilities industry. Businesses in the health care industry came second.

The annual premium averages include:

  Single coverage Family coverage
Agriculture, mining, construction $6,151 $17,144
Manufacturing $6,413 $18,383
Transportation, communications, utilities $7,838 $20,263
Wholesale $6,106 $17,486
Retail $5,716 $16,920
Finance $6,271 $18,662
Service $6,599 $18,555
State or local government $7,090 $18,581
Health care $7,233 $20,442

Group health insurance offer rate

As group health insurance costs continue to rise—often faster than inflation—more and more small businesses drop coverage.

In 2017, less than 30 percent of businesses with fewer than 50 employees offered group health insurance, according to the NFIB. That's a 22 percent decline from the offer rate of 37 percent in 2010.

This decline in offer rate is the most pronounced among businesses with fewer than 50 employees. In the same period, the Kaiser study shows the decline for both businesses with between 50 and 99 employees and businesses with more than 100 employees was just 3 percent.

Alternatives to group health insurance for small businesses

The average cost of group health insurance for small business will continue to rise. And with it, the offer rate among microbusinesses will only decline.

But offering nothing isn't the solution. Employees expect support from their business for health care expenses, and will often leave an otherwise fulfilling job to get it. In fact, those who are unsatisfied with their health benefit are 20 percent more likely to look for other work.

Not offering a health benefit also makes it difficult to hire new employees. Nearly a third of employees have turned down a job because of poor health benefits, and nearly 60 percent value health benefits so highly, they would accept a lower salary to get it.

Faced with these difficult choices, many small businesses have turned to personalized health benefits like the QSEHRA.

With a QSEHRA, small businesses can reimburse employees tax-free for their health care expenses, including premiums. Businesses offer employees a monthly allowance, and employees choose and pay for health care. Then, the business reimburses them up to their allowance.

There are no minimum contribution requirements, so small businesses can choose an allowance that fits their budget.

Conclusion

Small businesses that want to offer health benefits face ongoing cost increases in the group health insurance market. As the Kaiser study shows, these increases have become unsustainable for many.

Those that want to offer a benefit but can't afford group may turn to alternatives like the QSEHRA.

In fact, as the group market prices continue to rise, personalized health benefits like the QSEHRA will become the primary way small businesses offer nonwage compensation to employees.

Group health insurance exceeding your budget?
There's a better option: a health reimbursement arrangement.
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