Many small-business owners offer health insurance as a way to attract and retain employees. However, they must evaluate the small business health insurance cost for each employee to ensure it’s financially feasible for the business to provide this benefit. Determining the small business health insurance cost depends on a number of factors as well as possible tax credits available to the small business owner.
How Much Does Small Business Health Insurance Cost?
When shopping for health insurance for small businesses, costs can vary based on a number of factors. These include the number of employees, the employees’ age, and other factors. That being said, according to the 2022 Employer Health Benefits Survey conducted by the Kaiser Family Foundation, the average annual premiums for employer-sponsored health insurance at small firms are $8,012 for single coverage and $22,186 for family coverage.
The survey defines small firms as those with three to 199 employees. The Affordable Care Act, does not require employers with less than 50 full-time employees to provide health benefits. Those with 50 or more full-time employees must provide coverage that meets minimum value and affordability standards or pay a penalty.
What are the Costs Associated With a Small Group Health Insurance Plan?
To determine how much health insurance costs for small-business owners, it’s important to review the costs associated with small-business health insurance. These plans work just like individual plans. Small-business owners must pay insurance premiums, the cost to enroll in a health insurance plan. These plans also require the insured to pay deductibles, the amount they must pay before the insurance plan contributes toward costs.
Other costs of small-business health insurance include:
- How much the company contributes to the premium payment
- The insured’s copayment, or copay, for certain in-network health services or supplies (think office visits, ambulance services, a heart rate monitor, etc.)
- Out-of-pocket costs: a maximum annual amount the insured must pay before the insurance company pays 100% of any covered health care expenses
Factors That Determine and Are Associated With Cost
Regardless of the type of insurance purchased, such as business insurance, every insurance company uses certain factors to determine how much an insurance policy costs. For the cost of small-business health insurance, insurance companies typically use the following factors:
- The age of the people to be insured
- The location of the people to be insured
- How much the insured wants to pay out of pocket
- The specific plan features and coverage levels chosen
How Much Do Group Health Insurance Premiums Cost Employers?
Again, there’s not one set price point or percentage for how much employers pay toward small-business health insurance costs. Instead, it is based on several factors.
Employer Contribution Requirements
Employers decide how much they pay toward the insurance premium for their employees. According to the KFF survey, 33% of covered employees at small firms have employers who paid the entire premium for single coverage. Family coverage is another matter. The KFF survey found that 31% of covered employees at a small firm must contribute more than half of the premium for family coverage.
For employers with less than 25 employees, they can take a small-business healthcare tax credit to help reduce the health insurance cost for small businesses. To receive the tax credit, these employers must:
- Pay 50% or more of the employee premiums for employee-only coverage (does not apply to family coverage)
- Pay average wages of less than $50,000 per year per full-time employee
- Offer a qualified health plan through a Small Business Health Options Program (SHOP) Marketplace
It’s important to note employers can take the tax credit for just two consecutive tax years.
Employee Profile
As previously stated, who the insurance covers will affect the insurance premiums. Factors that affect premiums include:
- The age of the employee and any dependents (if family coverage is purchased)
- The location of the employee
- Employees’ tobacco use
Type of Plan
As with any insurance plan, the type and amount of coverage purchased will affect the insurance premiums. For instance, the ACA provides plans separated into four tiers: bronze, silver, gold, and platinum. Not surprisingly, a platinum plan costs more than a bronze plan.
Within the tiers, the plan types also will affect the insurance premiums. For instance, preferred provider organizations (PPOs) usually cost more than health maintenance organizations (HMOs) because they often work with a larger network of medical providers.
Industry and Location
The small business industry also affects health insurance premiums. For example, average employer premiums in transportation and health care can be more expensive than those in other industries.
The location of the small business and its employees plays a role in how much insurance premiums cost. It also affects how much employees will have to pay out of pocket. According to the U.S. Centers for Medicare and Medicaid Services, in 2020 the per capita personal healthcare spending ranged from $7,522 in Utah to $14,007 in New York. The Rocky Mountain and Southwest regions had the lowest per capita healthcare spending.
Conclusion
Making health insurance available to their employees is a benefit many small businesses provide to attract and retain employees. While the average cost of health insurance for small-business owners can be expensive, there are ways to offset those costs, including taking advantage of tax credits. Thoroughly researching plans can help reduce health insurance costs and partnering with the best small business insurance companies can provide tailored coverage options for your specific needs.
Frequently Asked Questions
How much does a small business spend on insurance?
The amount a small business spends on insurance varies based on the number of employees, the plan type and coverage, and how much the employer pays toward insurance premiums. Many employers pay 50% toward insurance premiums, but they could opt to pay less, although that could affect their ability to take a tax credit.
