How to Provide Affordable Group Health Insurance to Employees

As an employer you have always known that health insurance is seen as the most valuable of the employee benefits. But the question is: how can you provide group health insurance for employees without spending a fortune? But it is not just about providing health insurance but how to provide great group health insurance for employees.

In my article “How to Buy Health Insurance for the Small Business” I addressed the unique challenges of employers with fewer than 20 employees. You can read that post here: https://myhealthcare360.org/how-to-buy-health-insurance-for-the-small-business/. Employers with 20 or more employees will have more options available then their smaller employer counterparts.

Why Should You Provide Group Health Insurance for Employees?

The number one reason that you should provide group health insurance for employees is simple: because they want it. According to the MetLife Employee Benefit Trends Study 2020 86% of employees consider health insurance a “must have” employee benefit.

An article in the July 25, 2019 issue of BusinessWire 76% of employees reported that health insurance was more valuable than pay in choosing where to work. A competitive salary was ranked second. (https://www.businesswire.com/news/home/20190725005109/en/Healthcare-More-Important-to-Americans-Than-Salary)  

It is universally accepted that employee benefits are important in both attracting and retaining high quality employees. And both the Metlife study and the BusinessWire article support that assumption.

Perhaps the most important aspect of providing health insurance for employees is that a good plan can result in motivated employees. And motivated employees are also more productive employees.

When Health Insurance for Employees Has a Negative Impact

Surprisingly, providing health insurance can have a negative impact on employee morale under certain conditions. And when employee morale is bad, productivity and employee retention will be affected as well.

How can health insurance for employees negatively impact employee morale? As health insurance premiums have increased many employers have been forced to shift more of the premium to the employees. Plus, to keep premiums lower many employers have increased deductibles and out of pocket exposure as well. These changes are viewed as a reduction in benefits by your employees.

To understand this better consider this example. Imagine that one of your employees has a major medical event. Then, after the event that employee and is left with medical bills that exceed or wipe out savings. To this employee, the experience as if he/she did not have health insurance.

But high deductibles and premium shifting are not the only ways that your group health insurance plan can have a negative impact. By offering health insurance your employees lose the ability to receive a premium subsidy on healthcare.gov. If the employee feels that he/she cannot afford their share of the employee-only premium, they lose access to health insurance. And since many employers shift 100% of the dependent premium to the employee, many employees do not cover their spouse and/or children. But they still lose access to a premium subsidy that they might otherwise qualified for on https://healthcare.gov.

What Can You Do to Provide Group Health Insurance to Your Employees?

Today, employers with 20 or more employees have multiple ways to provide health insurance to employees.

1: Traditional Group Health Insurance is the most common and most well-known choice. Most of the health insurance plans will either be an HMO or a PPO health plan. If you are unfamiliar with these terms check out my article at https://myhealthcare360.org/what-is-the-difference-between-ppo-and-hmo/.

2: Using a level-funded health insurance plan. Level funding is a version of partial self-funding that looks and feels like traditional health insurance. From the employee’s perspective it will have deductibles, copays, and coinsurance, just like traditional health insurance. And like traditional health insurance, it may use the HMO or PPO model. In addition to the HMO and PPO models, some level-funded health plans use a concept known as reference-based pricing.  I will devote an entire article to level funding soon.

3: A less common approach is the pooled ERISA health plan. This approach is very similar to the level-funded approach. But the main difference is that in the level-funded approach each employer is its own claims pool. Under the pooled ERISA plan, claims are shared across all employers in the pool.

4: Provide an Individual Coverage Health Reimbursement Arrangement. Using this approach, the employer makes money available for the employee to purchase and individual, ACA compliant health insurance policy. You can learn more at https://www.healthcare.gov/small-businesses/learn-more/individual-coverage-hra/

5: Medical Cost Sharing is another great alternative. Technically, Medical Cost Sharing is not health insurance, but it is a cost-effective alternative. I will be devoting an entire post to Medical Cost Sharing.

upset, mad, crying

Offering Non-ACA Individual Health Insurance Products Is a Bad Idea

There are insurance agents selling non-ACA compliant health insurance products to companies as an alternative to traditional group health insurance. These agents sell individual health insurance policies to employees and you deduct the premiums from their paychecks. This is known as a list bill.

The first problem here is that in general, the employer does not contribute (and should not) contribute to the premium. Since these individual health insurance policies will not cover preexisting conditions, any misunderstanding by an employee can be costly to you, the employer. This is especially problematic when the policies offer a guarantee-issue.

Guarantee issue means that the insurance company will issue the policy regardless of health BUT will not cover pre-existing conditions for some timeframe. Now imagine an employee who has had cancer. He chooses to his coverage on his spouse’s ACA compliant health insurance because the plan that you are offering is less expensive. Unfortunately, he has a reoccurrence within the first twelve months and the new health insurance does not cover pre-existing conditions. Who do you think might be held responsible?

The second problem is that most of the individual health insurance policies that are offered under this approach are not major medical health insurance. And I can tell you from experience, that no matter how well that is explained, employees will misunderstand.

Health Insurance as an Employee Benefit

Just because you are offering access to a health insurance policy does not make it an employee benefit. For it to be considered a benefit, employees must feel that they are better off because they have access to it. As I mentioned earlier, if employees lose access to a subsidy on healthcare.gov but cannot afford the health insurance you are offering, it can have a negative impact.

If the deductibles and out-of-pocket liability are viewed as too high, employees may not feel like they have a real benefit.

My recommendation is to find a plan with an employee-only premium that you can afford. A high deductible health plan that you pay 100% of will be appreciated more than low deductible plan that you only pay 50% of.

Here are two examples that illustrate this point. In the first case the employer pays 50% of the $534 premium for a plan with a $2500 deductible. This same plan also includes a $10 copay for primary care visits. Participating employees pay $267 a month for their insurance.

The second employer implements a plan with $8500 deductible and no doctor visit copayments. The premium for this plan is $368. If this employer contributes the same $267, the employee will only have to pay $101 a month for the coverage. That saves the employee $166 a month. And if the employer chooses to pay $101 more per month, the employee will pay zero! Which employee do you think is happier and thus, more productive?

Please leave any questions in the comments below.

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