Small business owners weigh many factors when deciding whether to invest in a group health insurance plan, but oftentimes the decision comes down to dollars and cents. The Kaiser Family Foundation’s 2016 Employer Health Benefits Survey notes that the high costs of insurance premiums are the primary reason why firms won’t offer health insurance. Even for business owners who do offer plans, rising insurance premiums can create a lot of stress and confusion, especially if the owner doesn’t know how these premiums are calculated and how they can manage them.
Employers can have many questions for group health providers, and that includes exactly how much they can expect to spend. Here’s a rundown on what the insurance industry uses to calculate your group health insurance coverage premium, as well as some strategies that can lead to lower costs.
How are Group Health Insurance Premiums Calculated?
According to the KFF 2016 survey, the average family coverage premium is $18,412 per year and single coverage is $6,435 per year. Of course, every business is different, so your premium may end up being higher or lower depending on a variety of factors that are used to calculate the costs for your plan. These factors include the following.
Size and Health of the Group
The total number of people on your group plan can impact how much you pay. This number includes not only your employees who opt in to your plan, but also any family members who also opt in to your plan through an employee. A larger group of people can help lower your premium by spreading the associated health risks of a few people over an entire group.
However, the overall health of a group does affect your premium. While the Affordable Care Act doesn’t allow insurers to change premiums or deny insurance based on an individual’s pre-existing conditions and overall health status, the American Academy of Actuaries notes that the overall health of the group can play a role in determining premiums.
“If a risk pool disproportionately attracts those with higher expected claims, premiums will be higher on average,” the Academy writes. This factor can work in your business’ favor, as the Academy also notes that “If a risk pool disproportionately avoids those with higher expected claims or can offset the costs of those with higher claims by enrolling a large share of lower-cost individuals, premiums will be lower.”
Average Age of the Group
While the ACA no longer permits insurers to use certain factors like gender to alter premiums, it still allows insurers to consider age in premium determinations. According to independent actuarial and consulting firm Milliman, “rating by age is still allowed under the law as long as the ratio of the highest-cost adult age band to the lowest-cost adult age band does not exceed 3:1.” In a group plan, this means the average age of your group can play a part in what you pay.
An Employer’s Claims History
All those visits to the doctor can add up. Insurance providers use the number of total claims and how expensive those claims are to determine adjustments to your premiums over time. When it’s time to renew your policy, an insurer will review your group’s claims history and adjust accordingly. If a few employees had some medical issues that led to frequent or costly visits, that may be reflected on your updated premium cost.
Type of Occupation
Different lines of work carry different levels of risk. Your insurance provider may adjust your rates depending on the general occupation of your workers. For example, clerical staff don’t face the same health risks as factory, construction, or offshore workers, so insurance premiums for a group of office workers may be less than other occupations.
The Type of Coverage and Desired Add-on Benefits
Not all group health plans are the same. The level of coverage will play a big role in how much you and your employees pay. Better coverage and lower out-of-pocket costs can lead to higher premiums. Bundling extra add-ons such as dental and vision plans can also increase your premiums due to the extra coverage.
How Can I Save on Group Health Premiums?
Health insurance premiums can be expensive for a small business owner, but you don’t necessarily have to resign yourself to what your company is being charged. There are potential strategies that you can use to help you lower your costs and improve the health of your employees.
Workplace Wellness Program
Since the number of claims has a direct impact on your premiums, it can pay to improve the overall health of your employees. A customized workplace wellness program can help foster healthier lifestyle choices through health education and wellness activities. This in turn can lead to fewer doctor’s visits caused by preventable diseases, leading to a healthier, more active workforce and lower overall premiums.
Another way to limit the number of doctor’s visits is to give your employees access to a 24/7 mobile doctor. Telemedicine services give your employees the freedom to connect with a professional physician via phone, video, or online chat. This allows them to get the answers they need without having to schedule an in-person appointment with the doctor, meaning no copay for them and no extra claim for your plan.
Economy of Scale
Depending on where you get your insurance from, you may be able to take advantage of economy of scale. While larger companies have more employees and greater buying power, health insurance for small business owners don’t have the advantage of savings associated with economy of scale. However, a Professional Employer Organization can give you the buying power to lower premium costs.
A PEO can leverage the collective buying power of all their group health clients, acting as one large company that can purchase plans at lower premiums as a result. This helps your business avoid costly administration fees and save without sacrificing the quality of your business health insurance plan.
Partnering with a PEO also opens you up to cost-saving strategies such as wellness programs, telemedicine services, and more. If you’re interested in learning more about how a PEO can help your business save money on insurance premiums and make your businesses a healthier place, contact GMS today.