Small Business Health Insurance Cost: What You Need to Know

Providing employee healthcare is one of the not-so-exciting aspects of running a startup or small business. 

While it's important for stabilizing employee satisfaction and retention, finding the perfect health insurance plan that covers your workforce's specific needs can be incredibly challenging. 

But that's just the tip of the iceberg.

As a small business owner, you need to overcome quite a number of roadblocks in terms of employee healthcare:

• Cost Management — Small businesses need to make every dollar count without compromising the quality of healthcare their employees get. This starts with a deep understanding of how health insurance budgets really work, as well as how to identify (and rectify) cost inefficiencies.
• Regulatory Compliance — Unlike large enterprises with several teams on deck, small businesses often handle compliance issues with the same group of people who wear many hats. Not only do you have to ensure existing healthcare systems comply with federal and state-level regulations, you also need to make an active effort in keeping up with regulatory changes.
• Plan Selection — From Individual Coverage Health Reimbursement Arrangement (ICHRA) to group health insurance, small business owners are in charge of sifting through the available healthcare plans,z carefully weighing the pros and cons of each. This includes choosing a suitable third-party insurer or benefits management platform.
• Administrative Responsibilities — Employee healthcare also comes with administrative overhead that can be very overwhelming without a streamlined process. This includes managing enrollments, tracking payments, handling claims, and training employees. 

In addition to the points above, small businesses also face unique challenges that their larger counterparts don't have to worry about. 

For one, large businesses have the buying power and scale to negotiate better rates with third-party insurance carriers. They also have a larger risk pool, which directly affects the affordability of healthcare benefits for employees.   

Average Cost Of Health Insurance For Small Businesses

Without further ado, let's address the elephant in the room: 

"What is the average cost of small business health insurance?"

The answer, of course, depends on the type of health insurance.

Recent data from KFF reveals that the average annual cost of employer-sponsored health insurance is $8,951 for single coverage, increasing to $25,572 for families. 

Small businesses typically pay higher for single coverage plans — spending an average of $9,131 per year compared to $8,884 per year for larger firms. This is flipped when it comes to family coverage, where small businesses spend $25,167 while larger companies pay $25,719 per year.

These figures mark a 24% increase in premiums from 2019 to 2024. Worker contributions also increased by 5% within the same period. 

Each year, the cost of healthcare rises consistently alongside other economic benchmarks, namely:

• Overall cost of premiums
• Worker contributions increases
• Inflation
• Higher salaries

It is, however, worth noting that worker contribution toward healthcare remained relatively stable between 2019 and 2024. 

For high-deductible health plans + savings option (HDHP/SO), premiums are slightly lower at $8,275 for single coverage and $24,196 for families. 

What Affects Small Business Health Insurance Costs?

While the data is clear, that doesn't mean they reflect how much you should expect to pay in the coming months. 

Health insurance costs are driven by a handful of variables outside of macroeconomic factors, such as:

Company Size

The larger your business, the higher your negotiating power for securing more favorable rates. It also affects the types of health benefits you can offer employees. 

For example, if your company has fewer than 50 employees, you have the option to go with Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). This is a type of HRA that allows you to set fixed monthly contribution amounts that employees can reimburse for health insurance premiums and other eligible medical expenses. 

Company Demographics and Firmographics

Whether you like it or not, the demographics and firmograpics of your workforce have a profound impact on health insurance costs. 

While the Affordable Care Act (ACA) ensures companies can't charge more or less depending on the customer's gender, women in general use more healthcare services than men. 

The age of your workforce is also a direct factor when determining healthcare costs. 

For instance, companies where at least 35% of the workforce is aged 50 or older pay more for single coverage ($9,171 vs. $8,738). 

Healthcare Plan and Features

Lastly, don't forget that much of healthcare's cost depends on the implemented plan's type, coverage, and features. 

This includes elements like deductibles, copayments, eligible medical expenses, and the insurance carrier. 

Choosing group health insurance over individual health insurance can also lead to lower costs per person, especially for employers. 

ICHRA, for example, is a type of group insurance that allows employers to set a hard limit on healthcare costs for each employee — potentially leading to long-term savings. And, unlike traditional group health insurance, it also enables employees to choose an individual health insurance plan tailored to their specific needs. 

Contributions Between Small Business Owners And Their Employees

Take note that even with "employer-sponsored" healthcare, employees are also usually expected to chip in monthly contributions to keep their benefits. 

The distribution of costs also depends on a variety of factors. 

For starters, large employers tend to pay a lower percentage of contributions for both single coverage and family coverage. 

According to KFF, 37% of covered workers in small firms (less than 200 employees) don't contribute to single coverage plans. This number is significantly lower at 5% for companies with 200+ employees. 

Conversely, employees in small businesses typically pay a larger share of contributions for family coverage plans, with 26% shouldering over 50% of the premiums. For larger firms, only 6% of employees pay over 50%. 

Available Health Insurance Options For Small Business Owners

If you're looking to control the costs of healthcare in your organization, the first step is to conduct extensive research on the available health insurance options. 

That said, here's a quick overview of the top health plans that can give you the best bang for your buck:

• Group health insurance — A popular healthcare plan purchased by the employer that generally provides uniform benefits across all covered workers (with options for add-ons and coverage levels). This reduces overall healthcare costs by spreading the risk and financial obligations across the group.
• Small Business Health Options Program (SHOP) coverage — SHOP is designed for small businesses (fewer than 50 employees) looking for affordable and straightforward healthcare. It lets employers choose between health coverage, dental coverage, or both, while allowing them to enjoy tax benefits. 
• Level-funded plans — This plan allows employers to set their own healthcare budget per person while offsetting the sharing the risk of unexpected high claims through a stop-loss policy. A third-party carrier will also handle most of the administrative responsibilities of level-funded plans, making it advantageous for small businesses with limited resources. 
• HRAs — A Health Reimbursement Arrangement or HRA lets you assume full control of your monthly healthcare costs. This comes in different types, such as ICHRA, QSEHRA, and EBHRA (Excepted Benefit HRA). 

Remember, the type of health insurance you buy for your employees will have a direct impact on the cost of employee healthcare. Take your time, conduct surveys, and make sure you also understand your employees' needs before you make the final call. 

ICHRA For Small Business

When it comes to small business health insurance, HRAs remove unpredictability from the equation. 

ICHRA — the newest type of HRA available to businesses — also comes with additional layers of customizability to help employers fine-tune the healthcare plan their employees deserve. You can:

• Use ICHRA regardless of business size
• Define a list of reimbursable medical expenses
• Customize reimbursement amounts based on employee classes
• Save taxes on contributions and reimbursements

ICHRA is also incredibly easy to manage, especially with a visual health benefits platform like SimplyHRA. This lets you do everything through an intuitive, low-code interface, be it defining new employee classes, onboarding employees, managing budgets, or handling reimbursements. 

Conclusion

Navigating the health insurance landscape can be daunting for any business, regardless of size. However, small businesses need more attention to detail to make the most out of tighter budgets. 

If cost control is your top priority, HRAs like ICHRA are the ideal choice — putting you behind the wheel when it comes to monthly allowances while giving employees the freedom to tailor their healthcare to their needs.  

Not to mention that offering ICHRA is easier than ever, thanks to modern platforms like SimplyHRA. 

To see it in action, don't hesitate to request a free personal demo here.