Lewis & Ellis, LLC

A Guide to Employee Health Insurance Cost

Employee Benefits
by Bonnie Albritton
How Much Does Employee Health Insurance Cost?
How Much Does Employee Health Insurance Cost?

Employer sponsored health insurance is one of the most important employee benefits business owners can offer. Unfortunately, however, the costs can add up — so it's key to find a solution that works well from both a business perspective and an employee well-being perspective.

Here, we're discussing everything about health insurance, including which factors influence cost, how to make the right decision for you and your employees and more.

What Factors Influence the Cost of Health Insurance for Employers and Employees?

Before discussing some options available to business owners, it's important to highlight some of the most common factors that influence the plan cost of health insurance for employees and employers. While there are some aspects of plan design that employers can govern to an extent, others are out of their control.

For example, demographics, health status and industry or occupation are all factors that can affect health insurance premiums on the employee level that employers cannot control.

But when it comes to the cost contributed by employers, factors include:

Employer Contributions

The extent to which you subsidize employee premiums directly influences the overall cost of health insurance premiums that employees pay. Higher employer contributions can reduce the financial burden on employees while also making plans more attractive.

Claims Experience

If your business has lots of historical claims data from your workforce, that can affect the insurance cost. Insurers will analyze past utilization patterns, claims frequency and severity to assess risk and set premiums accordingly. A history of high claims can lead to increased health premiums.

Healthcare Trends

External factors such as medical inflation, advancements in healthcare technology and changing healthcare utilization patterns can affect overall health insurance costs. With that in mind. insurers must anticipate and adjust pricing accordingly to remain competitive and profitable while still maintaining affordability for employers and employees alike.

The Benefits of Offering Employee Health Insurance

Reasons are myriad as to why offering health coverage for employees is valuable, not only for them but for the business, too.

Employers Become More Competitive in the Increasingly Complex Job Market

Health benefits and perks are among the top five reasons employees accept a job offer with a new employer — second only behind pay and compensation, which ranked first with 63% of votes, according to a recent survey.

In an increasingly complex and competitive job market, employers who offer attractive employee benefits are in a position to benefit from more worker interest, which can result in higher application rates for open roles and better chances of finding top talent.

Tax Credits

Small businesses in particular are positioned to benefit from the Affordable Care Act (ACA) through its Small Business Health Options Program, or SHOP for short. The program is intended to lower premium payments for employers with between 1–50 full-time or full-time equivalent employees who want to provide health and dental coverage to workers.

To qualify for savings, you must meet a few requirements, including:

  • Having fewer than 25 full-time equivalent (FTE) employees.
  • An average employee salary of $56,000 per year or less.
  • Paying at least 50% of your full-time employees' monthly premium costs.
  • Offering SHOP coverage to all of your full-time employees.

The smaller your business (e.g., the fewer employees you have and the less money they make per year), the bigger the tax credit with SHOP. It's also important to note that, while employers must offer SHOP to all full-time employees, they're not required to provide it to dependents or employees working fewer than 30 hours per week. As long as all full-time employees are receiving SHOP coverage, employers qualify for the tax credit.

For further details and enrollment information, see here.

Types of Health Insurance Employers May Choose To Offer

Health insurance isn't cut-and-dry. There are a few different plan types to choose from, each with a unique set of benefits:

  • Health Maintenance Organization (HMO): HMOs require members to receive care from a network of designated healthcare providers and facilities. Generally, HMOs have lower premiums and out-of-pocket costs, such as co-pays and deductibles, but offer less flexibility in choosing providers.
  • Preferred Provider Organization (PPO): PPOs have a network of preferred providers, but members can see any healthcare provider they choose, though seeing out-of-network providers usually incurs higher costs. PPOs typically have higher premiums and out-of-pocket costs compared to HMOs because they offer greater flexibility.
  • Exclusive Provider Organization (EPO): EPOs require members to use providers within the network for all non-emergency care.
  • Point of Service (POS): POS plans combine features of HMOs and PPOs. Members choose a primary care provider but can also see out-of-network providers at a higher cost.
  • High Deductible Health Plan (HDHP) with Health Savings Account (HSA): HDHPs have higher deductibles and out-of-pocket maximums than traditional health plans. They're often paired with HSAs, which are tax-advantaged accounts where employees can save money for medical expenses. Contributions to HSAs are tax-deductible, and withdrawals for qualified medical expenses are tax-free.

Choosing Benefits That Employees Want

Making a blind guess isn't a winning strategy when it comes to health insurance. Instead, employers should look to workers and benefits experts to provide insights into what they value most to build a benefits plan that delivers. Here are a couple of strategies for building a strong benefits package:

  • Conduct employee surveys and gather feedback: Conduct surveys or focus groups to gather input directly from employees about their healthcare needs and preferences. This can help identify the types of coverage and services employees value most.
  • Benchmark against similar companies in the industry: Compare the health benefits offered by similar companies in the industry. Benchmarking against competitors can help ensure that the benefits package is competitive and attractive to current and potential employees.

How Employers Can Reduce Health Insurance Costs for Employees

Employer-sponsored health insurance often means more affordable health plan rates for employees. There are ways to optimize spending as an employer, including hiring expert consultants to analyze data, assess risk, optimize plan design and more.

Data Analysis and Risk Assessment

Actuaries can analyze historical claims data and employee demographic information to identify trends, assess risk factors and predict future healthcare costs for employers.

Experts can help employers understand the specific healthcare needs of their workers and their benefit utilization patterns to tailor benefit designs and cost-sharing structures, ultimately to mitigate risks and manage long-term costs.

Plan Design Optimization

Balancing affordability with comprehensive health coverage is key to achieving attractive health benefits overall. By evaluating factors such as deductibles, copayments, coinsurance and out-of-pocket maximums, actuaries can recommend plan adjustments that promote cost-effective healthcare utilization while meeting the unique needs of employees.

Predictive Modeling

Actuaries use predictive modeling techniques to forecast future healthcare costs and evaluate the potential impact of various interventions and plan changes. Employers can leverage these predictive modeling insights to implement targeted wellness programs, initiatives and other interventions aimed at reducing high-cost claims and improving overall employee health outcomes.

Alternative Funding Strategies

Actuaries can assess the feasibility and potential cost savings associated with alternative funding arrangements, such as self-insurance or level-funded plans. By gaining greater control over healthcare costs and assuming some of the risks, employers may achieve cost savings compared to traditional fully insured arrangements.

Develop Affordable Employee Health Insurance Plans

Lewis & Ellis can help employers in their health plan search by advising which options are best for both the business and employees. We use cutting-edge technology and unmatched industry expertise that works for today's dynamic marketplace to assess risk and advise on the next best steps forward. To get started, contact Lewis & Ellis today.



Consultants to Contact