Health Insurance is the number one benefit that Employees are looking at when evaluating whether or not to accept an offer from a potential Employer. It is extremely important to understand what the average Employer benefit amount is and how to create a competitive health plan.
Health Insurance is broken up into two groups: Small Group (under 50 full time equivalents) and Large group (over 50 full time equivalents). Each group has a different set of rules to follow and are priced differently.
Who is Considered Small Group?
Small group health insurance is defined by an Employer Group with less than 50 Full Time Equivalents(FTE). A FTE is defined by the total amount of hours worked in a week by all employees divided by 30.
A practical way to look at this rule is two part time employees that work a total of 30 hours per week = 1 FTE, where as an Employee that works 30 hours also = 1 FTE. Using this example if you have 3 employees who work a total of 60 hours this equals 2 FTEs.
“Small Group Health Insurance is for any Companies with 50 or less FTEs.”
How is health insurance priced for small group?
Small Group health insurance pricing method has changed with the inception of the ACA. Each State ultimately approves the actual rate charged, however coming up with the actual charge per covered person is based on actual age. This is a change from the old method of using the “average age” of the group.
For example let’s take two employees with different ages electing coverage for themself and their spouse (Employee+1 coverage) for the same plan:
John is married to Jane John is 28 and Jane is 26
Joe is married to Jenny Joe is 45 and Jenny is 40
Because John and Joe work for a company with less than 50 FTE their pricing is based off of the small group health insurance pricing model based on individual ages within each “Employee Group”.
John being 28 his rate is $275 per month and Jane is 26, her rate is $250 per month.
John’s total rate would be $525 per month.
Joe being 45 his rate is $375 per month and Jenny is 40, so her rate is $320 per month.
Joe’s total rate would be $695 per month.
As we can see, even though both Employees have the same coverage type, the cost is very different.
This present unique challenges to Small Groups in how much coverage to pay on behalf of the employee. Contact us to learn how to solve this.
“Small Group Health Insurance’s pricing is complex and is based on a per individual age.”
Strategies for Small Group Health Insurance
Most Small Groups opt to offer “fully insured” plans. This simply means they offer a plan completely provided by the Health Insurance carrier such as Carefirst, Aetna or United Health. In some cases a small group may offer a hybrid version of a self funded health plan. For Fully Insured small groups, many offer a high deductible plan.
High Deductible with HRA / Gap Insurance
One of the best strategies small groups can utilize is a high deductible health plan with first dollar coverage back by a HRA or Gap Insurance. These plans are not HSA eligible.
Breaking It Down – High Deductible
A high deductible plan is a plan where the insured has to pay the first X dollars before full coverage kicks in.
Breaking It Down – First Dollar Coverage
First dollar coverage is where the insured pays a co-pay to use services instead of paying towards the deductible. An example of this is a $30 co -pay to see a primary care physician (PCP).
Breaking It Down – Health Reimbursement Account (HRA)
An HRA is a strategy used to help Employees fund the deductible on a high deductible plan. For example, if someone goes to the hospital and incurs $1,000 of a $2,500 deductible, the HRA can pay this on behalf of the Employee. A HRA is an Employer funded account and no contributions from Employees may be made. The amount the HRA “funds” each Employee will vary based on the amount chosen by the Employer. Additionally, the total amount needed for the HRA will be based on usage and is not fixed.
Breaking It Down -Gap Insurance
An alternative to HRAs, Gap insurance is a insurance plan that pays out a specific amount when certain events occur. For example, if an employee goes to the hospital for a surgery, the Gap Insurance policy will pay out a specific amount which is normally set based on the amount of the high deductible. This provides an alternative method to cover high deductibles which provides a fixed cost (the premium) to the Employer.
Example of Strategy: $2500 High Deductible Plan with First Dollar Coverage for PCP and Specialist $20/$40). A $2,000 Gap plan is in place for hospitalization and surgeries.
- Joe needs to go to the Doctor for a cold. He pays $20
- Joe needs to go to the foot Doctor for a broken foot. He pays $40
- Joe gets hit by a bus and is rushed to the hospital. Joe is billed $2500 (his full high deductible) but the Gap policy pays him $2,000 resulting in a total bill of $500.
Joe has now met his deductible and all further expenses are covered at 100%
“Even for small group health insurance, there are many strategies that can be used to create excellent benefits and maintain cost.”
High Deductible with HSA
This is another common strategy for small groups although it has some drawbacks which make it less than enticing for Employees.
Breaking It Down – High Deductible
A high deductible plan is a plan where the insured has to pay the first X dollars before full coverage kicks in. In this plan there is no “first dollar coverage” and the employee must pay for all charges until the deductible is met in full.
Breaking It Down – Health Savings Account (HSA)
A Health Savings Account is an Employee owned savings account that may be funded and used for medical expenses. This account is in conjunction with a high deductible plan and is subject to certain contribution limits set by the IRS each year. You can deduct the contributions made to a HSA from your taxes. HSAs are utilized the most when contributions from the Employer to the Employee are limited. This allows the Employee to set money aside tax free to pay for additional medical cost. If an Employer does fund a portion of the deductible via the Employee’s HSA, the Employer cannot recoup any of the contribution if the Employee leaves.
Breaking It Down – Gap Insurance
Gap insurance can also be used to help reduce the larger medical expenses incurred from the high deductible plan. Since a HSA eligible High Deductible plan does not qualify for “first dollar coverage”, Gap Insurance can help meet some of the cost on major medical events.
For example, if an employee goes to the hospital for a surgery, the Gap Insurance policy will pay out a specific amount which is normally set based on the amount of the high deductible.
Example of Strategy: $2500 High Deductible Plan with A $2,000 Gap plan is in place for hospitalization and surgeries.
- Joe needs to go to the Doctor for a cold. He pays 100% of the Doctor’s bill.
- Joe needs to go to the foot Doctor for a broken foot. He pays 100% of the Doctor’s bill.
- Joe gets hit by a bus and is rushed to the hospital. Joe is billed $2500 (his full high deductible) but the Gap policy pays him $2,000. The total bill would be based on $2500 minus his previous medical bills minus the $2,000 the Gap policy paid him. If the amount of the Gap policy pays for more than his balance on his high deductible, Joe pockets the rest.
Joe has now met his deductible and all further expenses are covered at 100%
“Health Savings Accounts can be used for Small Group Health Insurance although they are not the top strategy to utilize.”
Co – Pay Plan
The co-pay plan is what more “seasoned” employees are used to. These plans have no deductible and the employee pays a copay for certain services. For example: If an employee goes to the PCP, he may pay $20. If he goes to a specialist he may pay $40. If he goes to the hospital he may pay $250. These plans are considered the “best” plans but are extremely expensive which reduces their commonality in the small group realm.
Small Group Health Insurance has its challenges, but with the right strategies, cost can be controlled without eliminating coverage. Contact us today.
“Co-Pay plans are normally the best benefit plans, however they are also the most expensive.”
“For Small Group Health Insurance, determining how much a Company should pay for each Employee is complicated and needs to be planned out.”
How Much Should I Pay for My Employees?
The biggest question Small Group Employers ask is, how much should I contribute to my Employees health insurance? This is a hard question to answer due to how Small Group Health Insurance Premium is computed.
According to the Bureau of Labor and Statistics September 30th 2017 benchmark report, the average Small Group Employer paid roughly 8% of the Employee’s Salary in Health Benefits. For example, if John makes $42,000 a year his Employer would pay roughly $3,360 on top of his salary towards benefits. There are many alternatives to funding Employee Health Insurance however, the three most common methods are:
Funding 100% of the Employee
The most common amount funded by the Employer for the Employee’s Health Insurance is the entire amount for single coverage. This method makes the computation of how much easy to apply across the entire company, however the amount funded for each employee can vary drastically due to the individual age of the employee and the corresponding rate.
Flat Funded Amount
Another method of computing Employer contribution to the Employee’s Health Insurance is using a flat amount. Employers that use this method on average contribute between $300 to $400 per Employee.
Per Employee Funding
Another Employer contribution method that is used, however must be used with caution, is funding Employee Health Insurance on a per Employee basis. With this method the Employer pays an amount that is determined based on the Employer’s and Employee’s need. For example, if an Employer needs to hire an “Operations Director”, the Employer understands that the benefit amount needs to be higher in order to attract the right talent. When this occurs, the Employer can increase the salary amount of the Employee by a specific amount and then have the Employee pay 100% of the premium.
For example, if ABC Company wants to hire John Doe, but the only way to get John to accept is to pay $1,300 a month in Employer Health Insurance Contributions, ABC Company will increase John’s Salary by $1,300 a month. Since ABC Company has a Section 125 plan in place, John will deduct 100% of the Health Insurance pre-tax, thus receiving the increased benefit of a higher Employer Contribution without being penalized with taxes.
This method can be very effective for Small Group Health Insurance, however it must be designed correctly to avoid discrimination. Contact us today to learn more.
“To get a small group health insurance quote, a Company needs to complete a census and FTE calculation. Contact Payroll Services to get started.”
How Do I Get a Quote for Health Insurance?
The process of getting a quote for small group health insurance is rather simple. First, contact a Payroll Services Insurance & Benefits specialist. Your specialist will work with you to get an Employee Census. An Employee Census is a spreadsheet which provides a list of your eligible Employees and their Dependents. This list contains their date of births, gender and zip code. Once your Payroll Services Insurance & Benefits specialist has your census we will then get quotes from all the carriers in your state which match your criteria. Once the quotes are received your Payroll Services Insurance & Benefits specialist will review the plans with you. Health Insurance plans typically start the first of the month and have a submission cutoff date of the 15th of the month. If you want a policy effective May 1st, the Employer would need to submit all information by April 15th. Contact us to get a free quote.