Learn what a premium is when it comes to your small business health insurance plan.
Some people may not know that there are several costs to understand when it comes to health insurance plans. The premium is the first major element of selecting a small business health insurance plan, and the cost of premiums serves as an important consideration for both the employer and employees.
Continue reading to learn about how monthly premiums form an important part of your small business health insurance plan.
What is a health insurance premium?
A health insurance premium is the total monthly cost for having coverage through a health insurance plan. Your premium is paid directly to the health insurance company that provides your coverage. For group health insurance, the employer fully or partially pays the premium on behalf of employees and their dependents.
Health insurance plan prices are fixed by law, and premiums are set by insurers based on some of the following factors:
- ages of the employee group
- coverage levels
- features specific to each plan
The cost of monthly premiums depend on the type of small business health insurance plan you choose, although they can generally be considered relatively high or low based on the plan’s annual deductible.
- If you and your employees want to save more upfront, then you may want to select a plan with a lower monthly premium and higher yet still affordable deductible in case of an emergency.
- If you and your employees prefer to pay more upfront and less when you use medical services, then you may want to consider a plan with a higher monthly premium and correspondingly lower annual deductible.
High premiums vs low premiums for group health insurance
Choosing a plan with lower monthly premiums might make sense for your small business if your employees are relatively healthy and do not need to visit the doctor frequently.
Conversely, a small business health insurance plan with higher monthly premiums could be a better investment if your employees anticipate the need to see the doctor pretty often. Overall, you should try to find an affordable balance between a monthly premium and an annual deductible that works for as many of your employees as possible.
Premiums are split between employer and employee in group plans
Since group health insurance coverage is sponsored by the employer, small business health insurance premiums are generally split between employer and employee. This means that both the employer and employees typically share the cost of premiums, with employers in most states usually being required to pay at least 50 percent of monthly employee premiums.
According to the Affordable Care Act (ACA) mandate for employers:
- If you have less than 50 full-time or full-time equivalent employees, it is optional to offer group health insurance coverage; however, if you do decide to offer group coverage, you may qualify for a tax credit toward cost sharing related to paying for premiums.
- If you have 50 or more full-time or full-time equivalent employees, you are required to pay at least 60 percent of their monthly premiums. The cost sharing arrangement cannot make employees contribute more than 9.86 percent of their household income toward premiums.
- Pre-existing medical conditions will usually not affect the cost of premiums.
Premiums per individual may be more affordable though a group plan
One of the major benefits of small business health insurance is that premiums per individual might be more affordable since there is a larger risk pool. This means that when more people pay into the plan through monthly premiums, there is a larger amount of money available for the insurance company to draw from when one of the enrolled members needs medical care.
Since risks are spread out across all members of a group health insurance plan, this tends to lower the overall cost of monthly premiums per individual member. Thus, premium costs for employees might be more affordable through a group health insurance plan, rather than through buying an individual plan for themselves.
Small business health insurance premiums in perspective
It is important to understand the role of premiums in small business health insurance. Although reviewing premiums should be your starting point, you should also consider annual deductibles and out-of-pocket costs as well. While the cost you pay for premiums will depend your coverage and benefit preferences, enrolling in a group health insurance plan may be able to save money for you and your employees through cost-sharing and lower premiums per individual.
To learn more about affordable small business health insurance plans, visit eHealth today.