The cost of health coverage is the main drawback for many small employers who want to provide healthcare for employees. Still, there are ways to keep the costs down.
Below we look at typical costs of health insurance plans, as well as the paperwork and administration that come with the territory.
Typical Plan Costs
Before looking at some average figures for healthcare plan costs, keep in mind that many employers require employees to pay part of the monthly premium, often up to half (and sometimes more) of the premium total. When we mention figures below, be sure to pay attention to whether we’re discussing totals or just the employer’s contribution.
In 2012, the Department of Health and Human Services estimated the average annual healthcare premium cost was $5,359* for a single employee per year. (Nationwide figures can be found in this easy-to-read table.) Before you gasp for breath, keep the following in mind:
- The figure includes both the employer and employee contribution. In most businesses, employers share the cost with employees. Employers typically pay from 50 to 80% of the cost of insurance. However, there are a few plans available to employers who wish to pay an even smaller portion of premiums. Talk with a broker or agent to find out about all your options.
- This number is an average, which reflects many plans that are considerably more expensive—and many that cost less.
- Don’t forget, whatever the employer pays is fully tax deductible as a business expense.
- The Affordable Care Act offers small businesses healthcare tax credits to help offset the cost of insurance. These tax credits have been available since the 2010 tax year. To qualify for a tax credit of up to 50% of premium expenses for any two years, small business owners must pay at least half of employees’ healthcare premiums and have 25 or fewer full-time-equivalent employees who earn an average of $50,000 or less per year.
To see whether you qualify for the tax credit and to find out how it is calculated, visit “Small Business Tax Credit”.* Other sources show a higher cost. The disparity might be attributed to a difference in size of businesses surveyed. The HHS figure listed above is specific to the small group market.
Paperwork and Plan Administration
Sponsoring group medical coverage requires paperwork. While these tasks usually aren’t too burdensome, the time and money you’ll need to spend managing your plan is a cost that you need to weigh along with the cash costs.
Paperwork and employee relations management comes into play:
- At the beginning when you introduce the health plan to employees.
- Once a year for open enrollment.
- With ongoing maintenance, including:
- Adding/deleting employees and family members.
- Making premium payments.
- Dealing with problems (billing, eligibility, claims).
- Collecting contributions and managing the payroll to accurately reflect employee contributions.
- Managing the paperwork for new and terminating employees.
Keep in mind that brokers often provide many of these services. When working with a broker, be sure to discuss which administrative duties the broker will assume and which will remain your responsibility.
We discuss working with brokers in Part Two: Getting Covered.
Can’t Afford It? You Have Options
If you’re ready to throw your hands up because you can’t afford insurance right now, don’t despair—you have some options. One is to consider some cost-saving strategies to find lower-cost plans.
See “Cost-Saving Strategies” for more tips.
In addition, there are some alternatives to group coverage that may make it possible for you to arrange for coverage for some of your employees and their families, at little or no expense to you. We introduce you to some of these alternatives later in Part One.