What Does Health Insurance Cost Employers?

It can be competitive out there to attract the best employees. But it’s even more damaging to lose the best employees. In fact, it might cost you $1,111 to train a new employee if you lose one. But how do you attract and retain talent? There are many factors that can affect this, but one worth examining is employer-sponsored health insurance. Employer-sponsored health insurance is still the most common type of health coverage in the US, and it can help boost employee health and reduce the costs of poor health. And those poor health costs can add up to a pretty penny of $530 billion dollars…so not great to go without insurance options for your employees. 

But many businesses—especially small businesses—wonder how much does health insurance cost employers? Is it worth draining the coffers for? We’ll walk you through the details of employer-sponsored health insurance, so you get a good idea of how much business health insurance costs are and what options are out there. 

What Is Employer-Sponsored Health Insurance?

At its core, employer-sponsored health insurance is any plan that provides health coverage to employees where the employer either pays part of the monthly premium or reimburses employees for costs. Think of it this way: health insurance premiums cost a certain amount of money, and you—as the employer—pay a certain amount before leaving it up to the employees to pay the rest. Some plans will cover retirees and some will cover dependents of employees. 

How many companies offer employer-sponsored health insurance? About 57% of all firms or companies offer health insurance. But only 47% of very small businesses offer employer-sponsored health insurance since it isn’t required for small companies. But it’s worth keeping in mind that offering employer-sponsored insurance is a great way to gain a competitive advantage to draw in new talent and retain talent. 

Types of Employer-Sponsored Health Coverage

While employer-sponsored health coverage could give you the recruitment boost you’re looking for, there’s not a one-size-fits-all approach to it. There are options for offering health coverage that work great in different situations. We’ll walk you through the three most common ways to offer employer-sponsored health coverage and what each one costs employers. 

Small Group Health Insurance

Group health insurance is the most common type of employer-sponsored insurance. Group insurance works by having you, as the employer, purchase a plan that covers all employees and their dependents. You pay a portion of the premium, and the employees pay the rest. If your company has more than 50 employees, group health insurance is required under the Affordable Care Act. It’s a great option for employees, and they love to see it as a benefit. 

What’s the cost of health insurance for employers? The average health insurance cost for employers for family coverage in 2021 is $22,221, which is a 4% increase from 2020. As an employer, that means you would pay that much over the course of a year to cover all of your employees with families. For your single employees, the average cost also increased by 4%, making the average cost $7,739. What are employee health insurance costs? For employees, they end up paying about $5,969 for family coverage or $1,299 for single coverage—adding up to 27% and 17% of the insurance premiums respectively. 

So what are the perks of group health insurance? About 87% of employees in a 2022 survey highly value health insurance benefits. Employees are more likely to stay with a company that offers group insurance, and they’re more likely to feel satisfied. Plus there’s the legal compliance benefits. All in all, you can really attract employees to your company with group health insurance. As a small business, it could particularly give you an edge in recruitment and retention because not all companies will offer it, and employees want to work somewhere with coverage.  

Health Reimbursement Arrangements (HRAs)

Small group insurance isn’t the only option you have as an employer, though. HRAs are a great way for employers to save money and offer health benefits. With an HRA, you would set up an account using something like QSEHRA (which was created specifically for small businesses under the ACA) where you reimburse employees for premiums or for out-of-pocket expenses. Basically, you set up an allowance, your employees buy their own insurance plan, and you’ll reimburse them after the fact. Easy, peasy, right? 

For an HRA, you have some control over how much it costs you since you set up the allowance amount. That’s one of the major perks with an HRA. But there are limits set by the IRS. Last year, employers with QSEHRA could offer a maximum of $10,700 per family and $5,300 per individual. Another big perk is that HRAs are tax free, so usually your employees get some pre-tax reimbursement which is great. 

The big limitation of an HRA is it does require employees to be able to pay for medical costs upfront. They can’t withdraw funds and pay with them. They have to pay at the doctor’s appointment or prescription counter. That can be tricky for some employees, so it’s worth considering what would benefit your unique employees. 

Health Stipends

There’s still yet another health coverage option for employers to choose from. You could—instead of insurance payments or reimbursement—offer your employees a stipend to use for their health needs. You set an amount each employee gets, and they can then use that money to pay for insurance premiums or out-of-pocket expenses. It’s a great financially savvy choice for small businesses that can’t foot the bill of paying for insurance premiums. It also works particularly well if you have international employees or contractors who wouldn’t normally benefit from an HRA or group insurance plan. 

There are a few downsides, as with every coverage option. The big con with health stipends is that they’re taxed. Employers have to pay payroll tax on the reimbursements at 7.65%. You also can’t require employees to tell you if they have an insurance plan, so they still might not have health insurance, even when you’re offering them a great stipend. 

Factors that Affect the Cost of Health Insurance

If you’re looking at health insurance as the way to go, what affects the amount you end up paying? The numbers we talked about earlier are just averages, so some companies pay more and some pay less than that. What causes that fluctuation? These are some of the factors that affect the cost of group insurance: 

• Employee demographics. If you have a bunch of super young employees with no chronic health problems, your insurance is probably pretty cheap. But if you have older employees or employees with chronic disease, your premiums will go up, unfortunately. 
• Location. Where you live affects how much you pay in insurance. If there are more health insurance options in your area, there’s more competition, and you can expect lower premiums. 
• Group size. How many people work at your company? That’s going to determine how many employees you’re covering and how much you’re paying. 
• Healthcare inflation factors. Unfortunately, health insurance costs seem to keep rising (see: the 4% increase last year). That will boost how much you’re paying. 
• Type of plan you purchase. Deductibles, copays, out-of-pocket maximums . . . they all affect how much you pay. 

The Bottom Line

Overall, health coverage is a great way to attract and retain the best employees in the industry. You have a few options as an employer to provide your employees with coverage without breaking the bank. Cost is definitely a big factor in what you want to do with your health coverage. Looking for ways to reduce the cost? We’re here to help. Reduce the cost of your employee health insurance by creating a wellness plan that empowers employees to make healthy decisions. Talk to a Wellbeing Specialist today.

References:

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