How Much Does Employer Health Insurance Cost?

There are a lot of things that might set a great employer apart from a mediocre one, but one that’s extremely hard to overlook is health insurance. After all, the cost of healthcare in the US is on the rise, even outpacing the record inflation of the past few years. Employees want to know that their employers have them and their dependents covered before they’ll be willing to sign any contracts.

But providing healthcare isn’t cheap. And, as we addressed in a previous blog post, simply spending more money on health and other employee benefits won’t necessarily bring in the kind of ROI you might expect.

So, how much does health insurance cost? And how much should your company be willing to spend on employee health insurance beyond the minimum?

What Are the Requirements of Employer Health Benefits?

First and foremost, it may come as a surprise but not all businesses are required to provide health insurance to their full-time employees. In fact, employers with fewer than 50 full-time or equivalent employees do not have to offer health benefits, and larger organizations with 50 or more full-time employees can likewise take health insurance out of the benefits package — provided they don’t mind paying a tax penalty amounting to $343.33 a month or $4,120 per year per employee (as per the Affordable Care Act).

Of course, if you don’t offer any kind of health insurance, you’re probably going to have a hard time attracting and retaining reliable talent. As such, most employers with a full-time workforce choose to make health insurance a part of the benefits package. But once you decide to offer it, be aware that you may be on the hook to cover more. Carriers in most states require that employers cover at least 50% of the premium employee health insurance cost.

Factors of Employer Health Insurance Cost

So you’re planning on offering health insurance. Probably a good idea, all things considered. But how much is it going to set your company back?

When estimating employer health insurance costs, there are a number of different factors to consider. Take a look at you business and your workforce, and see how they measure up in each of these categories:

Groups Size

Although it may seem counter intuitive, having a larger group (more enrolled employees) can actually make your insurance plan cheaper. The argument here is that more employees pay their premiums to maintain their coverage, but the risks are spread out more evenly through the larger group. So, when an employee needs expensive care, those costs are balanced out by the increased contributions from other members. Thus a larger group may mean a lower rate, overall.

Employee Ages

This one is a little more straightforward. Older employees tend to need more medical care, and insurance companies are more than willing to increase rates if the average age of your group is higher. =

Location

Prices are heavily dependent on location (a gallon of gas in California is going to cost a lot more than it would in Oklahoma) and medical costs are no different. In areas where procedures, office visits, tests, etc. carry a hefty price tag, employer insurance premiums are going to reflect that.

Cost/Number of Claims

Insurance providers like being paid, but they’re not as excited about paying. The more your members use their health insurance, the more it costs the provider, and the more your premiums are going to increase to make up for those costs. The total costs associated with member claims is a major factor in determining the price of healthcare services.

State Laws

Different states have different mandates dictating what kind of coverage must be included in employer health insurance plans.

Industry

Some industries are inherently riskier than others — if your workforce operates heavy mining machinery then they’ll probably be more expensive to insure than they would be if they worked in an office. If your employees perform higher-risk tasks, then your insurance provider will charge more to cover them.

Plan Specifics

Finally, specific plans or types of coverage will naturally impact the overall cost of insuring employees.

Employer Health Insurance Cost: Group vs. Individuals

Looking at the above considerations, it’s no surprise that company health costs can vary widely. Still, let’s take a look at some averages.

We’re not going to ask you to do any math here; the Kaiser Family Foundation (KFF) has already done it for you. KFF estimates that in 2021 the average annual employer insurance cost across all plan types, industries, locations, etc. was $7,739 for single coverage, and $22,221 for family coverage — that’s an increase of 4% over 2020. As for how much the employees themselves were paying, covered workers in 2021 contributed 17% of the premium for single coverage and 28% of the premium for family coverage (on average).

How to Determine the Cost of Employee Health Insurance

So, to go back to the question we asked right at the beginning, how much does employer health insurance cost? Here are some tips to help you figure out what you should expect to pay to keep your employees covered:

Start with the Averages

National averages can give you a ballpark range for what’s considered appropriate, but you shouldn’t try to match them exactly. Consider the factors addressed above and take into account premium-cost averages for your specific location to more accurately dial in on what kind of costs you should expect.

Keep It Affordable for Your Workforce

Top-tier plans with extensive coverage aren’t much good if they completely eat up your employees’ income. As you compare possible plans, a good rule of thumb is to shoot for annual premium costs roughly equal to 10% of the average employee salary. So, if your average employee makes $55,000 per year, then 10% of that would be $5,500, making approximately $460 per month per employee a good benchmark to shoot for. You can then adjust those numbers based on how much the company plans on contributing.

Don’t Outpace Annual Revenue

The last thing you want is for increasing insurance costs to exceed your company's revenue growth. Keep those costs manageable by aiming for benefits costs that are within 10–20% of your total revenue. This will help ensure that your benefits packages aren’t putting your business at risk of bankruptcy.

Understand Employee Needs

Insurance benefits only really stand to improve employee satisfaction when they meet employee needs. What kind of coverage is your workforce most interested in? Do they prefer lower deductibles or lower premiums? If your employee base is made of young, healthy individuals, then they’re going to want different coverage options than older employees, people with families, or those with chronic health conditions. Surveying your employees to understand their preferences can help you get a better feel for what plans (and what costs) will work best. Just make sure to keep the surveys anonymous and fully voluntary.

HNI Can Help

Remember: The best health plan for your employees is one that provides for their needs, they can afford to use, and you can afford to offer. Unfortunately, this means that there are a lot of different ‘musts’ that you’re going to need to hit while you review possible plans and establish relevant budgets.

Need a hand? HNI can help you better understand how to tackle insurance. Head here to learn more!