Wondering how much health insurance for employees costs or how much employers pay for health insurance? As a business owner, you’re always looking for ways to keep costs down, but you’ve also got to manage to keep both your customers and your employees happy, right? Offering health insurance for employees is a big determining factor in both employee satisfaction and retention, but it’s expensive! You’re probably wondering how much health insurance for employees costs. That’s what this post breaks down for you.
The latest data from the Kaiser Family Employer Health Benefits Survey shows a 5% increase in health insurance premiums, passing $20,000. On average, employees pay $6,000 of that total, with employers covering the remaining $14,000.
One of the first questions you likely have when researching small business health insurance options is how much it will cost. Group rates are mostly determined by the Affordable Care Act (ACA) guidelines.
→ Read our post about employer health insurance for beginners!
Rate restrictions vary from state to state. However, under the health care law, insurance companies can account for only 5 things when setting premiums.
Typically, you will find that these criteria will determine health insurance group rates:
If your head is spinning with all of this information, take heart!
There are alternatives to the historically chosen group plans. Some of the latest and greatest alternatives are called health reimbursement arrangements.
HRAs have been around for a few years now but are really gaining traction as more and more businesses catch on to the beauty of these tax-free health insurance options.
A health reimbursement arrangement allows employers to set aside a fixed amount of money each month that employees can use to purchase individual health insurance or use on medical expenses, tax-free. This means employers get to offer benefits in a tax-efficient manner without the hassle or headache of administering a traditional group plan and employees can choose the plan they want.
How it works is pretty simple. You choose a monthly budget that works for you, your employee signs up for a health plan that works for them, then you outsource the rest to an HRA administrator (like Take Command!) so you don't have to worry about things like compliance or forms during tax time.
Many business owners often inquire about whether they need to pre-fund their account or transfer funds to our account for employee distribution. Fortunately, the answer to both queries is a resounding no. The money remains with the employer until an employee makes a valid reimbursement claim. In the event that employees never make claims or fail to claim the full amount, the employer retains all the funds. It's a win-win situation for employers!
Let’s look at them briefly. (If you’re looking to take a deeper dive into these, all that info is at the bottom of this post!)
The individual coverage HRA has several advantages over traditional group plans that may be appealing to some employers. For instance, the reimbursement model (sometimes called a “defined contribution”) gives employers greater ability to control costs and provides employees with more options to choose from. Key advantages of the ICHRA include:
The qualified small employer HRA allows small employers to set aside a fixed amount of money each month that employees can use to purchase individual health insurance or use on medical expenses, tax-free. Key advantages of the QSEHRA include:
While we always advise our clients to speak with their CPA before jumping in, we are ready to chat on our website if you have any specific questions about your business (Like how company size impacts price) and how HRAs could help. We have also put together a really helpful ICHRA Guide and Small Business HRA Tax Strategy Guide as well as our wildly popular ICHRA FAQ post.
Likewise, we’ve created a guide for small businesses all about the QSEHRA. Our blog boasts easy to understand posts about both the ICHRA and QSEHRA.
What can we say? We love this stuff.
This post was originally published in 2020 and has been updated for 2023!