We know that shopping for an employer-sponsored health plan can be overwhelming. And it’s no secret that health plans can be expensive. As an employer, you want to provide a strong benefits package to both attract and keep employees. But you also need to be mindful of costs.
To help you navigate the process, we share trends in health care plans and what’s driving costs.
What do employers pay on average for group health insurance plans?
According to research from the Employer Health Benefits Survey from the Kaiser Family Foundation (KFF), the average 2020 annual premiums for employer health plans were $7,470 for single coverage and $21,342 for family coverage, of which employers paid $6,227 and $15,754, respectively.
Looking at these health plan costs on a per member per month (PMPM) basis, they come out to $622.50 for single coverage and $1,778.50 for family coverage, of which employers pay $519 and $1,313, respectively.
The 2020 premium costs represent about a 4% increase in year-over-year cost for both single and family premiums, a bump that is consistent with historical trends, notes the KFF survey. Inflation accounts for about 2.1% of that increase. For comparison, employee wages during that same period increased by about 3.4%.
Looking at the past five years, average premiums per enrolled employee for health insurance have increased by a staggering 18.3%.
A different employer benefits survey from Mercer found the average year-over-year increase in benefit costs to be 3.4%. The Mercer survey broke down the data by large organizations (those with more than 500 employees) and small companies. It found that large employers experienced only a 1.9% cost increase in benefits. This smaller increase was likely the result of delayed care during the pandemic. By contrast, smaller companies (those with less than 500 employees) experienced an increase of 6.9%.
But even moderate increases like 2%, 4% or 7% can have a big impact on business, especially when the COVID-19 pandemic rocked the foundation of our world and business profits.
The pandemic’s impact on the cost of health insurance plan trends
The pandemic disrupted health care on every front. Many employees skipped routine care and, as a result, insurers reported costs that were lower than predicted. Now that the COVID-19 vaccine is widely available, people are scheduling more appointments. Still, it’s hard to predict upcoming health care spending and the long-term impact of the pandemic.
Certainly, some of those skipped appointments won’t be rescheduled – no one’s going to go back and get their 2020 annual exam – but things like elective surgeries will be rescheduled. The question is whether delayed appointments and procedures mean that people will now have worse conditions that are more costly to treat? And will those worsening conditions lead to increased health care costs for everyone – including employers? Only time will tell.
How much employers should pay for health care benefits
In light of these recent trends, how much should employers be paying for health care now? And what can employers expect going forward?
A good rule of thumb in every economic climate is to keep your benefits costs within 10-20% of your annual revenue. As far as what’s affordable for employees, aim to keep their premiums under 10% of their income. Of course, remaining a competitive and attractive employer may require that companies aim at keeping employee premiums much lower.
Looking at the historical trend data, we see a pronounced trend toward minimizing the impact of rising insurance costs on employees. KFF data from 2016 to 2020 shows that while annual premiums for a single individual increased from $6,101 to $7,470, employers have shouldered the bulk of the increase. During that time period, employer costs rose from $4,776 to $6,227, while employee contributions remained relatively flat. That trend will likely continue as employers seek to stabilize employee premiums.
Understanding the factors that impact the cost of group health care plans
Knowing the numbers is just one part of a bigger picture. As an employer, you want to know what goes into those numbers. Here are some of the major factors that influence employer costs.
The types of health plans you offer – and the ones your employees choose – will have the highest impact on your costs as an employer. It’s a good strategy to offer a range of plans so that employees can choose one that best fits their needs. The most common options include:
- High-deductible plans – Often paired with a health savings account (HSA), these plans have lower premiums for employers and employees, but they’re not right for everyone since they provide less coverage. These plans are often chosen by healthy adults who only need coverage for preventive care and health care emergencies.
- Low-deductible plans – These plans have higher premiums and are often paired with a flexible spending account (FSA). Because they provide more coverage, these plans are generally a better fit for people with greater medical needs like chronic conditions.
- Coinsurance – Coinsurance within plans is another strategy to share health care costs. Coinsurance is the percent that employees are still responsible for after meeting their deductible. So, if a plan has 20% coinsurance, the insurance company will pay 80% of each covered medical bill and the employee will need to pay the remaining 20%. Both high-deductible and low-deductible health plans may utilize coinsurance. A higher ratio of employee responsibility can result in lower premiums.
- Copays – Copays, by contrast, are flat fees that employees pay for certain medical services. They provide greater predictability and reduced risk but may come with higher premiums. Some plans have both coinsurance and copays.
According to the KFF survey, 83% of employees have an annual deductible that must be met before most services are paid for by the health plan. Notably, the average deductible for employees is going up. This increase is the result of both higher deductible requirements within plans and increased enrollment in high-deductible plans. The survey also notes that 65% of employees have coinsurance for hospital admissions or outpatient surgery.
Plan funding is also a huge factor in plan costs. There are three main options for plan funding, each with its own advantages and disadvantages:
- Fully insured plans – These plans are easiest to administer. They offer greater predictability and less risk than other types of plan funding. Typically preferred by small to mid-sized business, fully insured plans are a popular choice for companies who want the process to be as simple and risk-free as possible.
- Self-funded – If you opt for self-funding, your plan may be less expensive, but will have a higher administrative burden and greater financial risk. The risk with self-funding is that the cost of treating the employees’ health conditions may end up being more than your company can comfortably pay. As a result, self-funding is mostly used by larger companies with the resources to tolerate this risk. They typically hire third parties to manage the administration of benefits.
- Level-funded – For employers considering a self-funded plan, a level-funded plan may be a better option because it reduces risk. Level funding doesn’t cut down on the administrative work, so companies need to have trusted partners to manage the benefits.
Administrative and reporting costs
Depending on how your plans are funded, benefits administration can be a time-consuming, resource-heavy endeavor. And the more employees you have, the greater the administrative burden. Your responsibilities may range from shopping for plans and researching new benefits to managing daily operations – such as enrollment, terminations and claims processing – to conducting plan audits and meeting ongoing reporting requirements.
While it may be tempting to opt for plans with the cheapest administrative fees, make sure you’re comparing apples to apples. Cheaper fees up front don’t necessarily lead to long-term savings.
One way to save on these costs, and to reap savings across the board over the long run, is to integrate your health care benefits. Choosing one insurer for medical, dental and pharmacy benefits will lessen the administrative burden, simplify the reporting process and provide a better experience – not to mention better health outcomes – for your employees.
How employers can manage costs by keeping employees healthy
If you’re looking for ways to reduce business health plan costs, start by looking at the overall value of health plans and the total cost of health care. Having a plan that encourages healthy habits and helps to proactively manage care needs is essential. By keeping your employees healthy, you’ll spend far less in health insurance premiums over the long run.
Focusing on employee engagement
The value of engaging people about their health cannot be overstated. And companies are finding creative ways to encourage employees to take action. Some options include health risk assessments or biometric screenings to help people identify their individual risk factors and take steps to mitigate those risks.
Consider offering incentives to encourage and empower employees to take charge of their health. Research shows that incentives do indeed work. In the KFF survey, 77% of companies offering them said that incentives were very or moderately effective at increasing employee engagement.
HealthPartners offers a suite of services to support employee engagement, including our Living Well program, which includes health education, lifestyle coaching and Healthy Discounts on products and services.
Prioritizing mental and behavioral health
The staggering impact of the pandemic on mental health is evident across all aspects of people’s lives – both at home and at work. So, it’s no surprise that supporting mental and behavioral health has become a big priority in employer-sponsored benefits plans. In the Mercer study, companies called out behavioral health as the top employee well-being priority for 2021, and 19% of companies said they’ll increase access to behavioral health services next year.
HealthPartners offers a broad range of mental health services and treatment options. Our groundbreaking Make It OK program includes a wide range of materials for companies to help normalize and destigmatize mental health issues. Plus, we proactively work to keep members feeling safe using a unique and innovative algorithm for predicting and preventing suicide.
Providing access to telehealth and lower-cost care options
Some good news stemming from the pandemic and health plan costs is the growing acceptance of telehealth as a lower-cost care option. According to the Mercer survey, employers had positive feedback about telemedicine during the pandemic, with 74% saying they were very satisfied or satisfied. What’s more, 80% of employers said telemedicine will play a larger role in their benefits offerings, with 28% planning to add, expand or incentivize telemedicine and related virtual health options.
A key value of lower-cost options is that it helps employees get the right level of care based on their specific need. When lower-cost health care is an option and employees are healthier, they are more likely to opt for a high-deductible plan – which means lower premiums for you and them.
HealthPartners health plans have robust support for telehealth options and other low-cost services such as Virtuwell and Doctor on Demand.
Find the best health plans for your employees and budget
There are endless ways to assemble health plans to ensure exactly the right balance of cost-effectiveness, quality and simplicity.
HealthPartners offers a range of health plan choices for employers in Minnesota, Wisconsin, Iowa, North Dakota and South Dakota, making it easy to find the right fit for your employees and your business.