The least and most expensive states for group health insurance

Offering your employees a health benefit is one of the best ways to attract and retain top talent, boost morale, and increase productivity. But health insurance can be expensive, especially for small employers, and the average cost can vary greatly depending on your state.

U.S. employers are experiencing rising healthcare costs regardless of their company’s location. This is especially true if you offer a group health insurance policy. Understanding how location impacts plan costs can help you decide if you want to enroll in a group policy or offer an alternative health benefit at your organization.

In this article, we’ll show you the least and most expensive states for group health insurance and how a health reimbursement arrangement (HRA) can help you control your benefits budget.

To learn more about how HRAs can help your business, check out our complete guide

What is group health insurance?

Group health insurance, or employer-sponsored health insurance, is an insurance policy employers purchase and provide to their employees. These plans differ from individual health insurance plans, which individuals purchase on a private or public health exchange like the Health Insurance Marketplace, regardless of employment status.

Covering 159 million Americans, group plans are often perceived as a traditional form of health insurance, and most people are generally familiar with how they work. Like other health policies, group plans usually have a deductible that can be low or high and an out-of-pocket maximum that employees must meet before the insurer pays 100% of the cost for covered medical services.

Group plans vary by health insurance company and plan type. But there are several commonalities all plans share, such as the following:

• Group plans typically provide health coverage to participants at a reduced cost by spreading risk around the “group.”
• Plan participants pay a monthly premium to maintain coverage, generally on a pre-tax basis via paycheck deduction.
• The employer and the employee split the total premium cost.
• Group health plans usually have a minimum participation rate (which is typically 70%).
• Employees can choose whether to enroll in or decline the employer’s group plan.
• If they enroll, they can add eligible family members and dependents to the plan for an extra cost.

In addition to ZIP codes, insurers determine a group plan’s monthly premium using specific factors like age, tobacco use, family size, and actuarial value. Due to the Affordable Care Act (ACA), insurance companies can’t use an employee’s health status, pre-existing conditions, or sex to determine health insurance rates.

While group health insurance may work for many employers, it can be too rigid, time-consuming, and costly for many. This is especially true if you’re a small business owner that operates or employs workers in states with more expensive medical care.

Affordable health coverage is hard to find, even with the wide range of health insurance companies available. To give you a better idea of the cost, the sections below will walk you through the average rate of group and individual health plans in the least and most expensive states in the U.S. for group coverage.

The top ten least expensive states for group health insurance

The following chart outlines the ten states with the lowest average monthly premium costs for group health insurance with the most recent data from 2021. For comparison, we also show the states with the cheapest average monthly cost for individual health insurance in 2021.

*Average group plan premium rates shown are for one employee with single coverage and include employer and employee contributions.

**Average individual premium rates shown are for a 40-year-old nonsmoker on a silver benchmark plan.

The top ten most expensive states for group health insurance

The following chart outlines the ten states with the most expensive monthly premium cost for group health insurance with the most recent data from 2021. For comparison, we also show the states with the highest average monthly cost for individual health insurance in 2021.

*Average group plan premium rates shown are for one employee with single coverage and include employer and employee contributions.

**Average individual premium rates shown are for a 40-year-old nonsmoker on a silver benchmark plan.

How an HRA can help you control your health benefits budget

With the annual cost of health insurance rising in many states, some employers are looking for more affordable options to meet their employees’ healthcare needs. Luckily, an HRA is a flexible and customizable benefit that can help your employees pay for medical care without busting your budget.

An HRA is a formal, employer-funded health benefit you can use to reimburse employees tax-free for qualified out-of-pocket expenses and sometimes individual health insurance premiums.

HRAs don’t have minimum participation or contribution requirements, making them a more flexible option than group policies., You can choose a monthly allowance that works best for your budget and reimburse your employees up to that allowance amount once they submit proof of purchase of an eligible medical care item or healthcare service.

Two popular types of HRAs are stand-alone HRAs and integrated HRAs. We’ll briefly go over each healthcare option below to help you understand how they can work for your business.

Stand-alone HRAs

Stand-alone HRAs are an affordable alternative to group health insurance. They are a great solution if your organization is based in a state with more expensive group plans. With stand-alone HRAs, employees choose their preferred individual health insurance policy, and employers reimburse them for the plan’s premium and other eligible healthcare expenses.

This means your employees can choose the health insurance company, policy, and network providers that work best for them. Additionally, because HRAs have no annual rate hikes, you have more control over your budget and optimize your health savings.

The qualified small employer HRA (QSEHRA) and the individual coverage HRA (ICHRA) are examples of stand-alone HRAs. QSEHRAs are made for employers with fewer than 50 full-time equivalent employees (FTEs) and must be offered on the same terms to all full-time employees.

They have maximum annual contribution limits, can coordinate with premium tax credits, and can be offered to part-time employees as well (as long as they receive the same allowance amount as full-time employees).

While similar in many ways to QSHERAs, ICHRAs are for employers of all sizes, can be offered on different terms to different employee classes, and have no contribution limits.

Integrated HRAs

If you're in a state where group health plans are more budget-friendly, you may want to purchase an employer-provided insurance plan or keep your existing group policy. In that case, you can build an even more robust health benefit by supplementing your group plan with an integrated HRA.

An integrated HRA, or group coverage HRA (GCHRA), is designed to integrate with group health insurance. Only employees enrolled in an employer’s group health insurance policy can participate in an integrated HRA—they can’t have an individual plan.

There are some similarities between integrated HRAs and stand-alone HRAs. Integrated HRAs have no contribution limits, and you can personalize them based on employee classes. Employers can use their GCHRA to reimburse employees for qualified medical expenses, including deductibles, coinsurance, and copayments. But you can’t reimburse employees for insurance premiums.

While an integrated HRA can work with any group health insurance policy, many employers choose a high deductible health plan (HDHP) to use with their integrated HRA to save on premium costs.

Even if you live in a state with affordable health insurance plans, an integrated HRA can help you control your budget while providing your employees with flexible and comprehensive healthcare.

Conclusion

Many employers offer their staff group health insurance because it’s a familiar option. But depending on your location, traditional health insurance may not give you the best bang for your buck. That’s why understanding the factors that affect premium rates is crucial when choosing a health benefit for your employees.

If you live in a state with costly group plans or simply want to offer your staff a more flexible health benefit, consider an HRA through PeopleKeep. Our personalized benefits advisors can set you up with the perfect health benefit solution for your company. Schedule a call with our team today, and we’ll get you started!

This article was originally published on February 8, 2017. It was last updated on June 16, 2023.

1. https://www.kff.org/other/state-indicator/single-coverage/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Total%20Annual%20Premium%22,%22sort%22:%22desc%22%7D
2. https://www.kff.org/health-reform/state-indicator/average-marketplace-premiums-by-metal-tier/?currentTimeframe=2&selectedDistributions=average-benchmark-premium&sortModel=%7B%22colId%22:%22Average%20Benchmark%20Premium%22,%22sort%22:%22desc%22%7D