Insurance is one of the larger expenses for businesses and individuals alike. According to the Kaiser Family Foundation (KFF), the average annual premiums in 2021 were $7,739 for single coverage and $22,221 for family coverage. Over the last year, the average premium for both single and family coverage increased by 4%. Even more shocking: the average family premium has increased 47% since 2011 and 22% since 2016.
With increases like these, it’s no wonder people are frustrated angry, and looking for ways to save. Recently, a business owner was explaining how angry she was because her individual health insurance plan, bought through the marketplace, had just increased premiums—again— and this time it was worse than before.
Related: Most people have access to to medium- or high-quality ACA marketplace plans
Recent years have seen a growing rift between group and individual insurance – many small business owners have not been able to keep up on all of the details. Many business owners, erroneously believe:
- They couldn’t do group insurance.
- They would have to pay for all their employees.
- Individual insurance would be cheaper.
This is simply not true.
Individual insurance contracts (i.e., Obamacare plans) are no longer the same as group insurance plans. Differences include deductibles, max out-of-pocket financial exposures, and pricing. In most cases, individual insurance is less advantageous for the consumer.
Many small business owners are not aware of the increased availability of group insurance. The Affordable Care Act changed many of the regulations affecting small businesses and insurance, and continues to do so. Many states continue to tweak their own rules applicable to groups employing between two and 50 people (small groups).
In most states, businesses with two or more people are eligible to purchase group insurance. Why is this important? Because, in many states, group insurance may be less expensive per person, have lower financial exposures, and have access to larger PPO networks.
How does it work?
There is a little-known aspect of the Affordable Care Act that makes group insurance very accessible for small businesses. If a business has an inception/renewal date of January 1, then the business is not required to contribute to the employees’ premiums. Further, there are no participation requirements (i.e., how many people must participate of the employed population), so the business owner could be the only one participating – a “group” of one.
Some states do not allow groups of one. In these states, you must have two participants. And note that husband-wife groups are treated differently and may not be eligible.
If the group insurance plan renews on any other date of the year, then the group is subject to contribution and participation requirements. These requirements are set by the insurance companies and are typically less stringent than most business owners believe. In most cases, the employer is asked to contribute only 25% of the cost of individual coverage on the lowest-cost plan.
Here is how this plays out in the real world: Most small businesses offer two or three plans for the employees to choose from, one of which will be the “lowest cost.” The employer then calculates 25% of what it costs for that single person and the employee is responsible for the remaining premium. How much money are we talking about? Typically, an employer is asked to contribute between $75 and $225 per month per person depending on the age of the employee – only for the people who choose to contribute.
As for the participation requirement, it’s typically 70% of eligible full-time staff after qualified waivers. A qualified waiver is someone who has an insurance plan from a spouse, the government, or an individual plan. Let’s say we have a group of 10 full time employees, four of whom have coverage through their spouse and one who is on Medicare. Here is how we determine the participation requirement:
10 eligible minus five qualified waivers = 5 employees
In this case, to attain 70% participation, only four people must participate.
Group insurance, and enhanced provider networks, just might be available to very small businesses and business owners. Don’t settle for inferior health insurance protection when better plans are within reach. A small business broker is best suited to help determine what is best for individual businesses.
Marcus Newman ([email protected]), RHU, CBC is vice president, employee benefits at GCG Financial, an Alera Group Company, a leading provider of exceptional employee benefits, risk management and wealth management solutions.