insurance benefits for small businesses and how they are calculated is the topic for this short blog article. It’s much easier than you think and knowing how can save you money.

Here is a great nugget of information for all the small businesses out there. As a small business myself in St. Charles, IL it is always my mission to educate my clients, potential clients, and the community about health and life insurance.

Many small businesses are perplexed or don’t even consider offering health insurance or other Group benefits to their employees because they believe it is too expensive or they do not think they have enough staff to gain benefits. I’m here to sort out some of the confusion surrounding Group Health Insurance and its Premiums. There are some qualifications to be met, tiers to understand, rules on participating eligible employees, and different ways you can contribute to your employees. With all these different things to consider we always recommend contacting a local agent. The MLD specializes and was built on helping small business owners in Kane County, St. Charles, and surrounding Chicago suburbs.

What Qualifies a Business for Group Employee Benefits?

In order to obtain Group Employee benefits a company or business must:

• Have formed the group or business for a purpose other than obtaining insurance for its members (Kaplan Financial Education, 2017)
• Have 2 or more employees
• Submit a quarterly tax and wage report to the IRS with 2 or more eligible employees

How Premiums Are Determined

As a small business owner and even if you are a medium or large firm, health insurance premiums can be expensive. So how do the insurance companies determine the cost of premiums for each Group or business?

A premium is pretty simple. It is literally the total amount to be paid to the insurance company for health insurance coverage! If you have ever purchased insurance through the Marketplace (also known as healthcare.gov) you will have remembered the premium showing up, the tax credit you will receive, and the total you must pay as the consumer. The premium amount before the tax credit is rated on you as an individual. This means when you entered your information, they asked basic health questions, and based on those answers the insurance company determined a “risk” which is then calculated into how much you as a consumer will pay to be covered.

Group benefits are determined differently in that they use a composite model. The rate is determined by such things as the groups’ median age, fluctuation of employees in also known as the turnover rate, previous claims, and age of business. They also have tiers that determine the cost based on who and how many people are being covered under one policy.

Here is a quick chart illustrating the individual determination versus the composite determination.

How to Determine the Company’s Contribution to Employee’s Benefits

The next step once you understand the tiers is to understand and decide how much you are willing to contribute as an employer to your employees’ benefits. What makes an employee eligible or non-eligible for benefits? While an employer can offer benefits to any or all below is a chart showing legal standards for what is considered eligible versus non-eligible. This is important because you need to have a certain number of “eligible” employees opt-in to the health insurance in order to qualify to offer benefits.

Many of my clients at the MLD Agency ask me how much they should contribute to their employees’ health insurance. Most are eager to even pay 100% so their employees feel taken care of by the business. My recommendation on this topic is always to have the employee pay a small portion towards their benefits. Many ask me how that is better than paying 100%? Well, like most things insurance-related there are rules and regulations surrounding the benefit of an employer paying 100% of their employees’ health insurance.

Below is a breakdown of how contributory and non-contributory rules and regulations work.

Contributory vs. Non-Contributory

Now that you understand 100% of your eligible employees have to opt into coverage below is a quick list of why an employee would NOT want free health insurance benefits from you as their employer.

• Your plan does not have their Doctors in the network
  • This is always the biggest reason someone will not change insurance plans!
• Their spouse or significant other has them added to their plan and it has better coverage, a bigger network, lower deductibles, and/or lower out of pockets than what you can offer
  • The larger the company usually the better benefits one can offer. If they have a great plan with someone else it NEVER makes sense to switch
• Employees are used to paying a portion of their health insurance
• It helps your bottom line so you can offer more benefits to your employees such as higher wages, more company-funded events, additional job opportunities, and career growth!

When a company signs up to offer health benefits, all premiums are billed directly to the employer and the employer must pay the premiums even if the employee is paying a portion. The employer usually sets up a direct withdrawal from the employee to pay for their contribution towards the premium. This is the easiest and most legal way to ensure payment on their portion.

In Conclusion

Many small and medium-sized businesses are not sure if they have the means to offer their employees health insurance and other key benefits so the MLD is providing a solid foundation on how to get started on figuring it out. There are many things to think about but once you have the basics down it will be a much easier conversation with your local agent. So give us a call if you have any additional questions. We are happy to continue to protect, support, and educate our local community and businesses.

Contact us for your Group health insurance needs!