March 22, 2022

How Much of Your Employees’ Premiums Should You Cover?

Many businesses want to offer better medical benefits and job incentives for their employees but aren’t sure how they compare with the competition. How much to contribute toward your employees’ premiums is a common question from business owners.

Let’s take a look at some statistics and guidelines you can follow to make your company’s health plan a good value that’s also attractive to employees.

Employer Premium Contribution Trends

There are many variables, so it’s impossible to give a one-size-fits-all approach to covering employee premiums. However, there are some great resources available, such as the annual Kaiser Family Foundation (KFF) Health Benefits Survey.

The KFF survey gives employers a good sense of trends in employer contributions. Something to keep in mind is the difference in the size of these businesses, as well as geographic location.

These highlights may help you get started:

In 2016, employers contributed an average of 82% at $5,306 for single coverage. For family coverage, employers covered 71% at $12,865 on average.

In 2017, employers again contributed an average of 82% for single coverage, at $5,477. Also, for family coverage, employers covered 70% at $13,049.

In 2018, employers contributed an average of 82% at $6,896 for single coverage. For family coverage, employers covered 71% at $19,616.

Keep in mind that these figures are for all plan types combined. For example, there will be some variations when comparing HMOs vs. PPOs.

You’ll notice that employers are continuing to spend similar amounts on employees’ health insurance year over year. If you are paying anything less than these percentages, you may have to adjust to stay competitive for employee retention and hiring.

Large vs. Small Employers

According to the 2018 KFF survey, small employers (3-199 employees) usually contribute less for family coverage. The averages for small employers premium coverage in 2018 are 82% for singles and 62% for families.

By comparison, large employers spend the same for single coverage but more for families at 71%. Also, the average for all employers, regardless of size, is 67% premium coverage.

This can be chalked up to cost. Smaller businesses cannot afford as much as their larger counterparts. Health insurance costs continue to increase, and maintaining the same coverage has become increasingly challenging for all businesses. A common approach to maintain coverage at manageable expenses is to increase employee cost-sharing for family plans.

Cost-Saving Alternatives

Another option for small businesses to cope with rising health insurance costs is to provide a health reimbursement arrangement (HRA). This plan allows employers to decide their contribution for an allowance paid towards employee’s individually purchased health insurance premiums and is often more affordable for small businesses.

There are some general rules to adhere to, such as the Affordable Care Act‘s (ACA) affordability standards. This law states that the lowest-priced individual plan offered by employers must cost 9.56% or less of the employee’s household income. That includes other family members contributions to the household income.

Premium Coverage by Industry

A good strategy when deciding how much to contribute to your employee’s premiums is to compare what other companies in your industry are offering in your area. It may be okay to offer less if you have additional incentives, but if you can afford to, it would most likely help your recruitment and retention rates to spend a little more than the local competition.

Some industries may spend more or less on their employee’s premiums due to the variance in other expenses such as their general liability policy. For example, manufacturers and contractors spend more on general liability insurance than the vast majority of different industries. This is due to the high risk of doing work that involves someone else’s property.

Also, the larger the manufacturing company, the more they will end up paying for workers compensation. These are just some of the factors involved in determining a health insurance and benefits budget for a company in a specific industry.

The significant differences among premium coverage in any industry are the size of the businesses. Both large and small tend to pay the same for individual coverage but significantly differ on family coverage – the more expensive premium. Alternatives to traditional health insurance coverage such as a reimbursement strategy (HRA) is becoming more popular during the recent rise of insurance costs.

Take a look at your current employee premium coverage and compare it against your competitors. If you need help deciding what the right amount to spend is or alternative strategies to save on cost and still offer good coverage for your employee’s, contact a benefits specialist at Brooker Insurance at 440-238-5454. We are experts at finding the appropriate target premium for your unique business’ needs.