How Do You Contribute?
Small Group Funding
Many of my clients ask for advice on how to fund their small group medical insurance premiums. Groups with less than 50 Full-Time Equivalents are unique in the fact that they don’t have to follow the affordability requirements defined in the Affordable Care Act. Without specific requirements, employers often look for other suggestions on the best way to pay for coverage for their employees. There are a couple different approaches employers can consider.
Whether employers select a defined contribution approach (where they assign an exact dollar amount towards the cost of coverage) or percentage-based funding method, most carriers will require the employer to contribute at least 50% towards the cost of employee-only coverage. This requirement is to encourage enrollment among employees and discourage adverse selection. Because small businesses aren’t required to offer coverage, they’re often providing coverage for their employees’ benefit. Whether it’s a recruiting or retention method or for the general well-being of employees, companies want to offer a good plan, but are sensitive to the overall cost. Small group health insurance plan costs have continued to rise with the rest of the industry, so it’s important for employers to share in the premiums in a strategic way.
When selecting an approach, I suggest employers consider their long-term strategy. If cost consistency is important, then a defined contribution approach is a good way to keep the employer cost stable. With a defined contribution approach, employers can provide a specific dollar amount towards the cost of the health plans offered. With a percentage-based funding approach, the employer can base contribution off one or more of the medical plan options and pay a specific percentage towards that cost. With this approach, employees may become accustomed to their employer picking up, for example, 50% of the employee-only cost.
There are many decisions an employer faces regarding health insurance design, and contribution set-up is an important one. Continual cost control efforts are critical to most employers, so it’s key to evaluate all the options to ensure a successful long-term approach. Equally critical is partnering with the right vendors that will work with the employers and provide the required tools to ensure lasting success.
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