How much should I expect to pay for small business health benefits?
When it comes to health insurance costs, from a small business owner’s perspective, the premium – payments made to the insurance company each month for coverage – is often the most important number to consider. Here are three ways to get a sense for what you can expect to pay for employee health benefits.
1. Use average costs as a benchmark
The average annual premium cost for single coverage in 2017 was $6,690, with employers paying 82% of that.* An employer’s contribution is often not the same for single employee and family coverage. In fact, one-third of workers in small firms (3-199 employees) contribute more than 50% of the total family premium. Use this interactive map(link opens in new window) to get a sense for the premium and deductible costs in your state.
2. Keep it within 10 to 20 percent of your overall revenue
Antara Dutta, a mentor for SCORE, a small business counseling organization recommends keeping total benefits costs for all employees to 10 to 20 percent of your overall revenue. Dutta explains, “Anything more than that, and you could bankrupt out because your year-over-year inflation of healthcare may be larger than your year-over-year revenue growth."
3. Aim for about 10% of an employee's annual income
While the ACA may no longer be the rule of the land, it considered health coverage affordable if the employee's contribution for covering himself only was no more than 9.69 percent of his annual income. Keeping annual premium costs around 10% of an employee’s income can help inform which plan you select, and how much the company will contribute.
For example, if the average salary at your company is $40,000/year, aim for a premium around $335/month per employee, adjusting up/down based on how much the company will contribute. (Premiums are typically shared by the employer and employees and how that’s split is determined by the employer.)
Final tip: Consult your accountant
Employer contributions to healthcare costs are typically tax deductible. Your accountant can explain how deductions offset the cost, potentially making benefits more affordable than you may think.
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