As an employer or HR professional, one of the challenges you may face is an increase in your group health insurance rate during renewal.
According to KFF1, premiums for employer-sponsored family coverage have increased by 20% over the past five years and by 43% over the past ten years. Additionally, data from Mercer2 shows that employers are expecting a 6.6% increase in health benefits costs in 2024.
Rising healthcare costs are a reality that many businesses have to deal with. However, there are options available to mitigate the impact of these rate increases.
In this article, we'll go over some options to consider when dealing with an increase in health insurance premium costs.
Why do health insurance premiums prices increase each year?
Group health insurance premiums go up for several reasons. General market conditions, a change in your plan type, the age of your employees, and where your workers live all play a part in your premium price.
One big reason behind the rise in health insurance costs is increasing medical costs. According to PwC's Health Research Institute3, healthcare costs will increase by 7% in 2024.
As your employees get older, move to areas with fewer health resources, and the cost of things like prescription drugs and medical services rise, your health insurance company has to raise their rates to make up the difference.
The hard part about these rate increases is that many of the factors that cause them are unavoidable. You can't stop your employees from having birthdays, moving to another ZIP code, or anything else that puts them at greater health risk in the eyes of your health insurance company. So when your rate goes up, it's there to stay.
Now, let's dive into your options for saving on health coverage when that happens.
Option 1: Cancel your group policy and sign up for a health reimbursement arrangement (HRA)
One way to deal with the rising cost of health insurance is to cancel your group policy and offer your employees a health reimbursement arrangement (HRA).
An HRA is a cost-effective alternative to traditional group health insurance. HRAs are employer-funded, IRS-approved health benefits. They allow employers to offer tax-free reimbursements to their employees for health insurance premiums and other qualifying out-of-pocket expenses.
Two types of HRAs that can replace group health insurance are the qualified small employer HRA (QSEHRA) and the individual coverage HRA (ICHRA). The QSEHRA is for organizations with fewer than 50 full-time equivalent employees (FTEs), while the ICHRA works for organizations of all sizes. With an ICHRA, employers can categorize workers by different employee classes and tailor their benefit design to best fit the needs of each class, including differentiating allowance amounts. The ICHRA is also a great solution for an applicable large employer (ALE) that needs to satisfy the Affordable Care Act's employer mandate.
Here are some of the ways HRAs outperform group health insurance:
- With an HRA, you don't have to worry about price increases since you set your employees’ monthly allowances. You can offer as much or as little of an allowance as you would like, giving you complete budget control.
- HRA funds stay with the employer. If your workers don't use their full allowance by the end of the year, that money goes back to your organization.
- You don't have to worry about annual increases. There are no annual rate hikes with an HRA.
- Unlike a one-size-fits-all group health plan, an HRA allows each employee to use their benefit on the qualifying expenses that matter most to them. They get to choose an individual insurance plan that works for them through the health insurance exchanges.
As an HRA administration software provider, PeopleKeep makes managing your new health benefit easy. We review your employees' reimbursement requests to make sure they're spending your money as intended. We also help you maintain IRS compliance. Plus, our award-winning customer support team is ready to help you every step of the way.
Option 2: Ask your healthcare provider for a more affordable quote
If you're not ready to give up on your group health plan, don't hesitate to negotiate with your broker or insurance provider. Engage in open discussions, present your concerns, and explore the possibility of negotiating lower rates. Health insurers understand the impact of rising costs and may be willing to work with you to find a solution.
However, keep in mind that the likelihood that they'll be able to find you a better rate isn't very good. As mentioned above, many of the factors that influence health insurance prices are out of your control, so it's unlikely your broker will be able to do much for you. But as the saying goes, it doesn't hurt to ask.
Option 3: Switch to a high deductible health plan (HDHP) with a group coverage HRA (GCHRA) as a supplement
If your broker can't come up with a more affordable quote, the next option is to talk to them about switching to a cheaper plan, such as a high deductible health plan (HDHP).
These plans have the lowest premiums but come with higher deductibles. A higher deductible comes with more out-of-pocket costs for your employees before their insurance starts to cover anything. That's where a group coverage HRA (GCHRA) can help. A GCHRA works alongside a group health insurance to cover the qualifying medical costs that aren't fully paid for by the plan.
You can also pair an HDHP with a health savings account (HSA), which allows employees to set aside pre-tax funds to cover their medical care expenses.
Option 4: Implement wellness programs to offset costs
Investing in wellness programs can help improve the overall health of your employees and reduce medical expenses in the long run. These programs can include initiatives such as fitness challenges, stress management workshops, and smoking cessation programs.
With WorkPerks by PeopleKeep, you can offer your employees a wellness stipend. This monthly allowance can cover things like gym memberships, wearable fitness trackers, home exercise equipment, and other wellness-related expenses. You can also offer a health stipend to your employees to help with their medical expenses. Unlike HRAs, stipends are taxable.
By promoting a healthy lifestyle within your organization, you can help prevent certain chronic health conditions and reduce the utilization of healthcare services.
While the rising cost of health insurance can present challenges for employers, it's important to approach the situation strategically and with a focus on the well-being of both the organization and its employees. By taking proactive steps, employers can effectively manage premium increases and provide valuable benefits to their workforce.
By considering different options, such as HRAs, you can maintain competitive health benefits that attract and retain employees. PeopleKeep's user-friendly software and award-winning customer support team are here to help you make a smooth transition from an unaffordable group health insurance policy to a flexible and sustainable HRA.
This blog article was originally published on September 15, 2021. It was last updated on September 27, 2023.