Business owners often ask me, "what do other businesses do for employer contributions", when constantly battling rising costs. From an insurance company's point of view, contributing 100% for your employees and anywhere from 0% to 50% for dependents will lend to your best funding for risk. "Adverse selection" is an insurance term for not setting up a situation where only the sick participate. David T. Leo, president of Western Mutual Insurance Company, had this to say in one of his articles entitled " Employer Premium Contribution --- An Important Cost Controlling Mechanism.
Using the term “contribution” in the same sentence as “cost controlling” when talking about health insurance might appear to be an oxymoron, but it’s not. In fact, there is a very close relationship between the amount an employer contributes to the health insurance premium for their employees and the long-term strength of their health insurance program. This is because of the simple principle known as “Adverse Selection” and its inverse relationship to employer contribution. Insurance models operate best in the absence of adverse selection. This is what happens when individuals are forced to pay a portion of the cost of obtaining health insurance and they only elect to participate in the insurance program when they decide it is in their best financial interest to do so. Employer contribution to the insurance premium helps eliminate the detrimental phenomenon of adverse selection and, ultimately, produces a healthier insurance program overall."
The reality of what the budget can afford may not coincide with this totally, and certainly the recession and rising premiums don't make it any easier. Spouses often are also employed, so you don't want to pay more at your end than their employer, especially when you could also be inviting unwanted claims. Many employers today contribute $0 towards the dependents, since dependent premiums can be paid pre-tax through payroll deductions, or again, a spouse's plan may have those benefits in place. Larger firms will sometimes have a rich benefits program, (which are tax deductible) to offset higher wages.
To get an idea of trends in premiums and cost sharing nationwide, the Kaiser Family Foundation found these results in a January-May 2010 survey:
"The average annual premiums for employer-sponsored health insurance in 2010 are $5,049 for single coverage and $13,770 for family coverage. Compared to 2009, premiums for single coverage are 5% higher ($4,824) and premiums for family coverage are 3% higher ($13,375). Since 2000, average premiums for family coverage have increased 114%. Average premiums for family coverage are lower for workers in small firms (3–199 workers) than for workers in large firms (200 or more workers) ($13,250 vs. $14,038). Average premiums for high-deductible health plans with a savings option (HDHP/SOs) are lower than the overall average for all plan types for both single and family coverage. For PPOs, the most common plan type, the average family premium topped $14,000 annually in 2010.As a result of factors such as benefit differences and geographical cost differences, there is significant variation around the average annual premium. Twenty percent of covered workers are in plans with an annual total premium for family coverage of at least $16,524 (120% of the average premium), while 19% of covered workers are in plans where the family premium is less than $11,016 (80% of the average premium). In 2010, covered workers contributed a greater share of the total premium, a notable change from the steady share workers have paid on average over the last decade. Covered workers on average contribute 19% of the total premium for single coverage (up from 17% in 2009) and 30% for family coverage (up from 27% in 2009). As with total premiums, the premium shares contributed by workers vary considerably around these averages. For single coverage, 28% of workers pay more than 25% of the total premium while 16% make no contribution. Fifty-one percent of workers with family coverage pay more than 25% of the total premium; only 5% make no contribution. Looking at dollar amounts, the average annual worker contributions are $899 for single coverage and $3,997 for family coverage, up from $779 and $3,515 respectively in 2009. Workers in small firms (3–
199 workers) contribute about the same amount for single coverage as workers in large firms (200 or more workers) ($865 vs. $917), but they contribute significantly more for family coverage ($4,665 vs. $3,652)."
Hopefully this gives you an idea of current trends and some benchmarks. We're always available to sit down and put a strategy together with you, as we understand that companies grow and the dynamics can change from when you first put your program together. Don't hesitate to call or email us with any questions on this topic. Have a nice fall and good business.
