How are Small Group Health Insurance Plans More Affordable Compared to Other Plans?
When it comes to the workplace, employees play a crucial part in a company’s success. Many employers want to keep them safe and healthy, so workers can continue being productive. One of the ways to do this is by offering coverage for health care.
There are multiple solutions, and one of them is small group health insurance. To qualify, a company needs between one and 50 employees that are either full-time or full-time equivalent.
Unlike large firms, small businesses are not required to provide insurance. Plenty of them do, but many do not seek small group coverage. Around 47% of employees in small companies get insured by their employers.
Part of the reason may be because of costs. Luckily, some plans are cost-efficient for small businesses. Small group plans can offer employers several benefits. Continue reading to learn how they are more affordable than other solutions.
Small-Group vs Large Group
One of the benefits of group health insurance is that it can attract and retain workers, which is effective for your team in the long run. Employees are more likely to apply to a company that offers coverage. One of the reasons is that it is easier for them to enroll in an employer’s health insurance plan. There is no need to spend time searching the market on their own.
In 2015, the Employee Benefit Research Institute created a study, and some of the workplace statistics include:
88% of workers view employment-based health insurance as an extremely important workplace benefit.
About 75% of workers see the company’s benefits package as a necessary factor in their decision when choosing jobs.
Around 22% of employees stated that they accepted, left, or switched jobs due to the benefits.
Businesses of all sizes use group insurance plans as part of the benefits to lure in workers. There are two different types of group plans. Small group plans are used by smaller companies, and big businesses tend to get large group plans. What makes small group health insurance plans more affordable?
Small-Group Plans Offer Tax Credits
The main benefit of small group insurance plans is tax incentives. Due to the Affordable Care Act, smaller businesses can qualify for tax credits for their health care. Employers need to have fewer than 25 employees to qualify. They also have to pay the average income of less than $50,000 a year per full-time equivalent. Another requirement is to pay at least 50% of the cost of employee-only coverage.
The amount of credit you receive varies on the number of full-time equivalent employees you have or the average wage. The smaller the business, the bigger the credit they receive. The maximum credit is 50% of premiums paid, and tax-exempt employers can get up to 35% of premiums paid.
If your business does not owe taxes, you can carry the credit over to other tax years. If eligible, you can still claim a business expense deduction for the premiums as well. Another important note is that the credit can be refundable. It is necessary to make sure that it does not exceed the income tax withholding and Medicare tax liability when filing for a credit refund.
Overall, coverage is less expensive for employers than providing higher wages. Not to mention, it does not get subjected to payroll and withholding taxes. If companies were to allocate the money to income instead of health insurance, then employees would not see some of that money due to taxes. Not only is there a tax incentive for employers, but employees can also benefit.
Premiums and Splitting Costs
When it comes to shopping for health insurance, one of the biggest concerns is how much the premium costs. Premiums are a regular payment that a person makes once a month to stay enrolled in their health insurance.
For individual workers covered by companies, the premiums of small group plans are not all that different from the large group plans. However, family coverage for small groups tends to have a lower premium when compared to that of a larger employer’s family policies.
One of the unique aspects of group plans is that the costs of insurance get split between employers and workers. You will not have to bear the full burden when providing benefits for your team. Most health insurance plans will require employers to pay at least half of each employee’s premium. Of course, workers can pay the full cost of adding their family members to the plan.
For family plans, those employed tend to contribute more to the costs in small groups than in large ones. Small employers are likely to provide full coverage, especially for a single person. It can be cost-effective to allow workers to copay with businesses.
Small-Group vs Individual Insurance
As mentioned before, it can be helpful for businesses to offer small group health insurance plans to keep employees satisfied. People who are not covered by their employers tend to pay more for an individual health care plan. The cost of individual health insurance has risen over the years, which is why employees are attracted to companies that offer coverage.
Of course, uncovered workers are not the only ones seeking individual insurance. Employers also may offer this type of coverage to each employee. However, this option can be a bit more costly than a small group insurance plan. Even for businesses, the rise in health care costs can affect their bottom line.
It is much more cost-effective to cover your entire staff under one policy. Even if you only have a team of three or four people, a small group health plan can benefit you. Not to mention, a group plan makes it easier to keep track of premiums and deductibles. Here is how a small group plan is more affordable than individual coverage.
Premiums and Deductibles
Besides premiums, the other cost that is associated with health insurance is the deductible. A deductible is the amount of money a person has to pay before their plan can begin contributing to medical costs. Deductibles and premiums are the two main ones that people consider the most.
Both small group and individual plans involve making these types of payments. Overall, small groups have lower premiums and deductibles than individual coverage. On average, small businesses paid roughly $409 a month for small-group premiums. Meanwhile, the cost for individual coverage is an average of $440 a month.
When it comes to deductibles, small employers may find that they pay an estimated $3,140 a year. For individual plans, the average cost is around $4,578 per year.
The difference between the average premiums may not seem all that big, but it can have a considerable effect on your business. It is important to remember that each plan comes with its own terms and limitations.
Other Benefits of Small Group Plans
There are other benefits for both employers and employees when choosing a small group health care plan. As mentioned previously, employers and workers can contribute to the costs. Small group plans can make payments less stressful by allowing both of them to pay for the premiums.
Small businesses can enjoy tax benefits for small-group coverage, unlike individual plans. You can deduct the amount you pay for an employee’s premium from your business taxes. Companies are not the only ones who can enjoy some of the tax benefits. Workers can use some of their pre-tax money to pay for a portion of their premium. As a result, it can add up to significant savings.
Another benefit of a small group plan is that there is a better risk pool advantage compared to individual insurance. A risk pool is a group of people whose medical costs are combined to determine premiums. At-risk employees have less effect in a larger pool due to their costs getting offset by healthy employees.
Small-Group Insurance is More Stable
The market is consistently changing, so it is helpful to have a plan that offers stability. Small group coverage tends to be more stable than individual plans. Even when the market gets unstable with its prices, you can be assured that you will likely see less change with your premiums.
For example, a study by eHealthinsurance found that the average per-person premium for small companies went up by 5% between 2015 and 2018. Meanwhile, individual premiums increased by 54% during the same time frame.
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There are a variety of small group health insurance options available. It is necessary to figure out what your business needs when selecting the one that is right for you.
