Health insurance premiums are one of the costliest benefits employers offer their employees. In 2021, on average, employers covered 83% of an employee’s self-only premiums and 73% for family coverage.
To help employees manage these costs more easily, some employers provide them with a stipend to cover out-of-pocket expenses. Here is how it works:.
Premiums
As part of selecting an employee benefits plan, knowing its costs are vitally important. This includes premium payments made directly to an insurance provider for coverage; they may be monthly, quarterly, semiannually or annually depending on your plan and are typically deducted directly from payroll on a pretax basis.
As is typically the case, more expensive coverage results in higher premiums. A number of factors can impact premiums, including coverage type (HMO vs PPO), state of residence and employer size; additionally, age and gender also play a part in how much health insurance costs. Younger workers usually pay lower premiums; however there may be exceptions.
Premium costs can be an enormous burden on low-wage workers, and many companies are taking measures to lower them. One such way involves increasing deductibles to decrease payments to insurers – this may also come with reduced copays and coinsurance payments in some instances.
Employers can further cut costs by switching to managed care plans, which tend to be cheaper than traditional plans. It is important for employers to remember, however, that doing this may pass more of their healthcare costs onto employees themselves.
Some firms are finding ways to reduce the overall cost of health insurance programs by altering contribution strategies and plan features. They may limit coverage only to current employees or only children up until a specific age, and can offer health reimbursement accounts (HRAs), which allow employees to use an allocated allowance toward purchasing individual health coverage or meeting other medical expenses.
Some employers are taking steps to bring down costs by providing incentives to employees who participate in wellness programs; in particular, rebates on their health insurance premiums for participating can encourage healthier lifestyles while helping lower premium costs for both employee and spouse.
Deductibles
As a small business owner, employee benefits can quickly add up. This is particularly true of group health insurance premiums which have increased by 22% in 10 years according to Leonard Davis Institute of Health Care Management — more than twice as fast as wages or inflation have grown over this same period.
High deductibles can also pose a challenge. An increasing number of employees are enrolling in plans with deductibles of $2,000 or more – an amount many families must pay out-of-pocket before receiving benefits from their coverage. Due to these factors, employers are finding it increasingly difficult to provide equivalent levels of group insurance coverage as before.
There are ways to keep employee benefits costs under control, however. One option is replacing traditional group health insurance with an HRA (health reimbursement arrangement), which gives your employees an allowance that they can use towards paying individual or family premiums and qualifying out-of-pocket expenses. You could even offer voluntary benefits like dental or disability coverage that may save a considerable amount compared to paying for this coverage through traditional group plans.
Your employees deserve more than traditional health insurance; consider providing pet insurance, flexible spending accounts, commuter benefits and health and wellness programs as ways to make them feel good about working for your company. A recent survey indicated that employees appreciated these perks more than their salary or bonus payments!
No matter the benefits your organization provides, it’s essential that its real value be understood in order to make informed decisions regarding budget allocation and demonstrate to employees why these benefits are worthy investments.
According to a 2023 KFF report, average annual premium costs for group health insurance for employees averaged $6,575 for family coverage and $1,401 for single coverage respectively; employees typically contributed 27% and 17%, respectively, of this amount through payroll deductions on a pre-tax basis. Since premiums tend to increase annually, it’s vital for companies to regularly evaluate their contribution strategies and plan features in order to remain compliant.
Copays
Cost is one of the key elements to consider when considering potential employee benefits programs for your organization, and depending on plan design and contribution strategy this cost can fluctuate year to year. Small businesses frequently face this dilemma as they look to provide employees with benefits programs they will enjoy while keeping costs in check.
One of the primary drivers of employer-sponsored health insurance costs is its deductibles and copays. A deductible is the initial payment an employee makes before insurance begins paying, with a yearly maximum limit. For example, if an employee pays $35 out-of-pocket for a doctor visit, their coverage should cover all remaining covered costs once their deductible has been met – such as their share of any costs that were not covered under their plan’s coverage limit.
Copays are fixed dollar amounts that an employee pays when accessing a health service, such as doctor’s visits or prescription refills. Most deductibles typically include copays; however, not all plans do. Some plans also feature an out-of-pocket maximum that limits how much an individual pays per calendar year regardless of visits or services received.
Traditional health insurance plans tend to include high deductibles and copays; however, business owners have options they can explore to control these costs while providing valuable employee benefits. Health Reimbursement Arrangements (HRAs) or Stipends can help businesses and employees choose a plan which best meets their needs while still remaining cost effective.
Consider also the value of voluntary benefits that can be added on to traditional health insurance, such as telemedicine, gym memberships, pre-paid legal assistance, pet insurance and access to group long term care insurance. While such extra investments can have a considerable effect on total costs, they are usually worth their while because they help keep health insurance premiums down.
Coinsurance
Employee benefits are an integral component of workplace compensation packages. Benefits such as health, disability and vision insurance as well as life coverage may not be legally required, yet most employers still provide them as a perk to attract and retain talent. While the costs can add up quickly, there are ways for businesses to cut expenses.
Employee benefits start with premiums, which is the amount an employer pays towards an employee benefits plan. This amount may differ greatly depending on its type and whether it provides family or individual coverage; additionally, certain plans have out-of-pocket expenses like deductibles that could significantly raise costs further.
Many employers give employees the option of paying part of their premium through payroll deduction, which may help to reduce overall plan costs while making it more convenient for individual workers. Unfortunately, small-business premium costs continue to outstrip inflation rates, making it more challenging than ever to continue providing healthcare benefits to their staff.
An additional factor impacting employee benefits costs is coinsurance, or co-pays, which refers to the percentage of medical service fees an employee must cover once their deductible has been met. For example, with plans offering 20% coinsurance, the insurance company would cover 80% of covered fees, leaving an employee responsible for 20%. Typically, coinsurance limits are set with maximum out-of-pocket expense limits in mind to protect employees against unexpectedly large bills.
Finally, some plans may provide prescription drug coverage which can be quite expensive for an average employee. However, its costs have increased more slowly than other employee benefits costs and generic drug prices continue to decrease rapidly – meaning it still makes financial sense to offer this important employee benefit.