Weighing the numbers: How to evaluate the cost of group health insurance
For instance, consider the premium—the amount paid to the insurance company each month for coverage—against other costs, such as co-payments, deductibles and coinsurance. In general, the more you pay on the front-end in premiums, the less your employees will have to pay on the back end—in the form of co-payments, deductibles and coinsurance—when they use services.
Typically monthly premiums are paid for by both an employer and employees, and how that’s divvied up is an employer-controlled component (though some insurers and health plans require businesses to cover at least 50% of premium cost for covered employees).1 In 2015, the average premium for single coverage was $6,251 per year, with employers covering 83% of the premium on average, according to the Kaiser Family Foundation.2
Here are a few things to contemplate as you weigh the numbers:
Understand how the pieces fit together.
A higher premium will generally mean a lower deductible, or the amount an employee must pay toward medical costs before the insurance plan kicks in. Conversely, smaller premiums will usually lead to a higher deductible, which means an employee will pay more if they need medical care. The two variables work a bit like car insurance; if you raise your accident deductible to $2,000, your monthly payments will go down—but if you're in a crash, you'll owe $2,000 before your insurance pays for any damage.
Don't forget out-of-pocket costs.
Co-payments and coinsurance, the payments that go along with medical visits, can add up if employees see a doctor frequently, and co-payments often don't count toward a deductible. For the big picture, you must estimate what you will pay and what your employees might pay with each plan choice.
Find out what's important to your employees.
It may be that your workers care more about catastrophic coverage than regular checkups with a low co-payment. They may have strong feelings about prescription drug coverage or dental plans. Understand employees' financial preferences, too. People with chronic health conditions or with small children—who tend to require frequent trips to the doctor—may lean toward higher premiums with lower co-pays, while a young, healthy workforce may favor a smaller up-front fee. A well-placed survey or quick poll can help you determine how the bulk of your employees feel.
Do the math on a High Deductible Health Plan (HDHP).
In 2015, the average annual premium for employees in HDHPs that qualified for Health Savings Accounts (HSAs) was $5,312 for single coverage and $15,379 for family coverage—significantly lower than premiums for other group coverage.3 Workers may be incentivized by the prospect of being able to use pre-tax money in an HSA to pay for medical costs—and lower premiums may enable you to contribute to employees’ HSAs.
Talk to your accountant.
Small businesses with fewer than the equivalent of 25 full-time employees and annual average wages of about $50,000 or less may qualify for special tax credits if they choose to provide group health insurance coverage and pay at least 50% of employee premiums.4 To be eligible, businesses must have purchased coverage through the Small business Health Options Program, or SHOP marketplace.
Because no one can predict the future, estimating total cost for group health insurance—for you and your employees—is tricky, but it pays to think through the numbers before choosing your plan.
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