Small Business Health Insurance Costs: How Pricing Works | hioscar Blog | Oscar
Small Business Health Insurance Costs: How Pricing Works
Cost is a huge consideration for small business owners deciding whether to offer health insurance.
Employee Health BenefitsTips for Small Businesses
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Cost is a huge consideration for small business owners deciding whether to offer health insurance, but there’s no one-size-fits-all plan or price tag. What you pay for coverage — called the premium — depends on how you customize the plan you’re offering.
What is a premium?
Let’s start with the basics. A premium is the fixed dollar amount paid per month to an insurer for health insurance coverage.
Premiums can be paid entirely by your business, but most commonly the cost is shared between employer and employee. How much premiums cost each month depends on a number of factors, such as:
Plan design: coverage level, the deductible, single or family coverage.
Type of network: Health maintenance organizations (HMOs), Preferred provider organizations (PPOs), Point of service plans (POS), or Exclusive provider organizations (EPOs).
Business location: prices may fluctuate depending on the region.
How Plan Design Affects Business Health Insurance Premiums
In 2019, 75% of firms offering health benefits offer only one type of health plan, according to Kaiser Family Foundation (opens in new tab). That percentage is even higher for small businesses, so it’s important that the one you choose is right for your company and your employees.
Traditional plan choices are offered by most every insurance company, and sound a bit like Olympic medals: bronze, silver, gold and platinum.
Each plan offers the same essential health benefits. What’s different is the split between how much employees will pay for care vs. the insurance company. Take a look at this chart:
Note: Business Health Insurance Cost Breakdown by Tier.
Low premium plans are usually the most cost-effective option for businesses, but tend to put a greater financial burden on your employees, since this type of plan often comes with a high deductible.
How Location Impacts Business Health Insurance Costs
Where your business is based also affects costs. This is because competition, local regulations, and cost of living vary in different areas.
In 2019, group health insurance premiums were relatively even across regions, but annual premiums were most expensive in the West for individual plans and in the Northeast for family plans. The Midwest saw the least expensive annual premiums for family coverage, as did the South for individual coverage. Here are the average annual premium costs for covered workers by region, according to Kaiser Family Foundation (opens in new tab):
Note: Business Health Insurance Cost Breakdown by Region.
How Network Type Affects Health Insurance Costs for Businesses
A network refers to the doctors, hospitals, labs and other medical facilities that your employees will have access to as part of their health coverage. Rule of thumb: the bigger a health insurer’s network, the more coverage usually costs.
HMO: that stands for Health Maintenance Organization. Typically the most budget-friendly network, but also the most limited as far as choice of doctors.
PPO: or Preferred Provider Organization. Plans with a PPO network are the most expensive because they usually provide coverage for any doctor or specialist you want to go to.
POS: means a Point-of-Service plan. These moderately priced networks offer a broad range of choices, but require a gatekeeper in the form of a primary care doctor who issues referrals for all specialists and hospital visits.
EPO: is an Exclusive Provider Organization. EPO plans like those offered by Oscar provide the best care-to-price ratio, meaning that members can save money when they go to one of our high-quality, trusted in-network provider partners. This pricing helps make coverage even more affordable.
How Much Do Employers Pay for Health Insurance?
To know how much you will pay for health insurance as an employer, you will need to decide how much employee premium you want to cover.
Last year, the average annual premium contribution (opens in new tab) by employees at small firms was $1,242 for single coverage and $6,015 for family coverage. Of the overall premium costs, that’s 18% and 30%, respectively. The remainder from the table above? That was paid for by the companies. In 2019, covered workers in smaller firms with 3-199 workers had a lower contribution, on average, for single coverage ($1,035 vs. $1,330) but a higher average contribution for family coverage ($7,805 vs. $5,271) than larger firms with 200 or more workers.
The more an employee pays out of pocket, the less health insurance costs your business. The trade-off is that you’re putting a bigger financial burden on the people who work for you. Finding the right balance is something the team at Oscar can help you achieve.
The good news? You’ve got plenty of options and price points when it comes to choosing a health care plan for your company. Even better news? Oscar is here to walk you through all those choices. Learn more about our small business health insurance, or get in touch and we'll help you pick the right plan for your company.
