Sticker Shock? A Solution for Small Business Health Insurance Rate Hikes

At renewal time this year, many small businesses will face sticker shock at the new rate hikes for group health insurance in 2015. Many small businesses are seeking cost-mitigation strategies to deal with the premium increases this year. A popular solution among small and medium-sized businesses is switching employees to individual health insurance and reimbursing them for their premiums.

The Rising Cost of Group Health Insurance

The costs are becoming unsustainable for small businesses and their employees. Small business health insurance costs have nearly doubled since 2009, with 91 percent of small businesses reporting increases in their health plan at their most recent health insurance renewal.

Costs continued to rise in 2014. In fact, the Kaiser Family Foundation’s annual Employer Health Insurance Survey (2014) revealed that the cost of group health insurance for family coverage has risen 26 percent in the last five years and 69 percent in the last ten years. Family_Coverage_Employee_Contribution

Chart: Kaiser Family Foundation
The Kaiser survey also revealed that small businesses are less likely to offer health benefits to their employees. Among the small businesses who reported not offering benefits in 2014, cost was the primary reason.

It looks like these rate hikes will continue in 2015. According to the preliminary survey results from Mercer’s National Survey of Employer-Sponsored Health Plans, group health insurance rates will rise by an average of 3.9 percent in 2015– and that’s if the businesses make significant changes to their existing plans.

Family_Coverage_Employee_Contribution

According to the survey, the projected increase actually reflects cost-mitigating actions the businesses will take. If the businesses make no changes to their existing plans, projected costs would rise 5.9 percent on average.Projected_Healthcare_cost_increase

Chart: Mercer

The Solution for Sticker Shock

Small businesses can mitigate their group health insurance costs with a simple solution: not renewing their group health insurance plan; however, dropping health benefits altogether is not a feasible option for many small businesses or their employees. Many small businesses are considering adopting a premium reimbursement plan to offer health benefits to recruit and retain top talent.

By setting up a premium reimbursement plan, small businesses reimburse employees tax-free for individual health insurance policies. Businesses fix their costs on a monthly basis, and employees can choose a health insurance policy that best meets their health and financial needs.

Additionally, individual health insurance costs up to 60 percent less than group health insurance, making premium reimbursement is an effective solution for businesses who wish to cut down on healthcare costs for their employees.

To set this up, the business first needs to decide how much they will contribute toward employees’ health insurance expenses. This allowance, or “defined contribution,” can be the same for all employees, or it can differ depending upon employee class and/or family status.

To remain in compliance with regulations regarding these reimbursements, businesses should use reimbursement software to help make administration of the plan easy

With the cost of group health insurance renewals on the rise, businesses are facing enormous cost challenges and are seeking cost-effective alternatives to group health insurance. The emerging solution is premium reimbursement for individual health insurance.

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