In the United States, nearly 60 percent of people have health insurance through an employer. While the passage of the Affordable Care Act (ACA, also known as Obamacare) made direct-purchase health insurance more accessible for those without employer-sponsored options, for many workers, health insurance is seen as a draw of regular employment.
This means that the insurance benefits an employer offers, and how the costs of that insurance are shared, directly impacts a business's ability to hire the right people.
"Employer health benefits are such a crucial part of attracting and retaining talent," said Michael Stahl, executive vice president and chief marketing officer at HealthMarkets. "It is essential to get it right."
Healthcare is going to cost you, whether you own a business or you're just an average employee. Stahl and two other health insurance experts helped us break it down.
How employer-sponsored insurance costs are shared
Costs are generally shared in two ways: premiums and out-of-pocket costs, said Stahl. Depending on the plans chosen by you and your employees, these costs can be split across a variety of payments and savings plans.
Out-of-pocket employee costs
- Deductible is the amount paid for healthcare services before the insurer begins paying. Most deductibles are yearly amounts and a portion of the cost shared by employees. For example, an employee may have a $2,000 yearly deductible, which means they must pay for $2,000 of medical services before the insurer covers the rest of the costs.
- Co-payment, or co-pay, is the amount employees pay directly to a healthcare provider at the time of service. Not all services or plans require co-pays.
- Coinsurance is the percentage of insurance costs that employees are still responsible for after their deductible and applies only to services covered by insurance. For example, if a plan has 20 percent coinsurance, then the insurance company will pay 80 percent of each covered medical bill, and the employee is responsible for the other 20 percent.
Shared employer and employee costs
- Premiums are payments made to the health insurer that allow employees to keep their coverage. These are due at regular intervals, often monthly or quarterly. Under most cost-sharing plans, employers and employees both pay a portion of the premium, with employers often paying the larger share.
- Health savings accounts,or HSAs, are tax-free savings accounts that can be used for future medical expenses. HSAs can be paired with certain high-deductible insurance plans and do not need to be spent within a single year. Employees may contribute to these on their own, or an employer may contribute a portion of savings as well.
- Flexible spending accounts, or FSAs, are pre-tax accounts designated for healthcare costs not covered by insurance, including co-pays and deductibles. FSA funds are set aside by the employer, and the employee must use them by the end of the year. Funds that are not used are sent back to the employer.
How employers can keep health insurance costs down
1. Shop around.
"With so many different options, understanding and ultimately choosing the right health insurance plan can be confusing," said Stahl. "The key is to work with an agent who is unbiased and can show you all the options."
These options may include group health sharing plans, traditional group plans, ACA marketplace plans, or even level-funded plans, which provide rebates at the end of the year if your employees have made few health insurance claims.
"By having the opportunity to learn and compare from multiple carriers, you can be sure you are getting the best benefits structure with the best rates available," Stahl advised.
2. Encourage proactive healthcare.
In general, said Rudolf Berzins, principal of Apex Benefit Group, it costs less to insure people who are proactive about their health. Many insurance companies will offer incentives for companies that encourage employees to participate in workplace exercise programs or regular visits to primary care providers. Before you select an insurance provider, check if any of them will provide discounts or rebates for proactive health initiatives in the workplace.
3. Shift cost-sharing to employees.
To reduce their portion of health insurance costs, employers often choose plans that shift more of the costs to employees, said Arthur Tacchino, chief innovation officer at SyncStream Solutions.
"The employee will likely be required to contribute more to the cost of their employer-sponsored healthcare coverage," Tacchino said. "These contributions remain tax-advantaged, but ... it means a smaller paycheck for the employee."
While this strategy can save money for employers, it may also hurt their ability to recruit and retain employees.
4. Look for prescription drug discounts.
"Pharmacy and prescription coverage has a tremendous impact on overall insurance premiums," said Berzins.
In addition to saving money on insurance costs by seeking generic drug alternatives within you plan, Berzins recommends investigating whether you can get direct discounts: "Contact the pharmaceutical company directly for possible coupons or discounts."
Health insurance changes in 2019
Though many changes in the costs of health insurance will depend on the types of plans you choose and make available to your employees, some trends and legal changes are more systematic. These will affect employees and employers everywhere, regardless of what insurer you use.
"Deductibles are continuing to increase, and there are more cost-sharing options between employers and employees," said Berzins.
This increase in options means that business owners can make more plans available than in prior years and lower the costs to employers.
"Some employers saw rebate checks last year for the first time from fully insured plans," Berzins added.
The largest increases in costs in 2019 will be in coinsurance and co-payments for emergency and hospital care, as well as in rising deductibles. Most of these changes impact what employees pay out of pocket. But employees can reduce their own expenses by choosing different tiers of insurance within their group health plan, said Berzins.
And there is a definite benefit for employees who don't have many medical expenses: "These changes will help stabilize premiums," Berzins said.
For many employers, though, the biggest change they will see in 2019 concerns the Affordable Care Act and what it means for their legal obligations to employees. Tacchino noted that 2019 is the first year that the ACA's individual mandate penalties are zeroed out, which may impact how many employees, and their dependents, participate in insurance plans.
"Employers typically will continue to see rising premiums, which has been the trend … even before the inception of the ACA," said Tacchino. "Outside of this major change, there are no other substantive changes that affect employer-sponsored healthcare."
This means that employers who were legally obligated to offer health insurance options to their employees are still required to do so through 2019.
"The main takeaway is the ACA is here to stay, and employers need to be aware and make sure they stay in compliance," Tacchino said. "There are always political debates, and more recently legal challenges that blur this fact for employers, but they must remain vigilant in their compliance efforts to avoid potentially significant penalties from the IRS."