When you run a small business, offering group health insurance plays a critical part in attracting and retaining top talent. According to a study by MetLife, 81% of employees named health insurance as a “must-have” benefit, while only 3% said that it wasn’t needed. While other factors impact job decisions, it’s no secret that healthcare coverage plays a key role in making your business a more desirable place to work.
The advantages of offering group health insurance are clear, but there is a drawback for businesses – it’s not cheap. Group health coverage can cost a small business thousands of dollars per employee, and those annual costs can add up depending on the size of your workforce. It’s also common for premiums to rise year over year.
Want to know why premiums are getting more and more expensive? We’ll break down what impacts your premiums and why rising costs are a common trend.
What Impacts Your Group Health Premiums?
The cost of a group health insurance premium is driven by several different factors. Insurance companies use these different considerations to raise or lower your group’s rates. The biggest factors that will dictate how much you and your employees pay include the following categories.
Group size and overall wellness
The first thing an insurer considers when calculating your company’s premium is the size of the group. Larger groups tend to enjoy lower costs because other factors can be spread across a greater number of individuals, whereas small groups won’t enjoy the same economy of scale.
In addition to size, insurers also evaluate the general health and wellness of a group. A group that presents a higher risk of costly claims is likely to pay higher insurance rates. This reality is simply because the insurer estimates how much they can anticipate in paying out for claims in any given year, which is why your premiums may be higher.
Age of the group
The unfortunate truth is that as an individual ages, medical issues tend to be more common. Insurers will typically use the average age of your group members to calculate your premium. If your group skews older, your premiums will likely be higher than average.
Group member occupations
Some occupations inherently carry more health risks than others. The level of risk based on certain industries or jobs directly impacts the cost of group insurance premiums. For example, a staff comprised mostly of accountants will present a lower risk than a group of construction workers. As such, the construction company is likely to have a higher number of claims and more expensive premiums in this scenario.
History of claims
Your past also plays a direct part in premium calculations. The total cost of past claims can negatively or positively impact your rates. If your group has several members undergo costly medical procedures, your premiums may increase the following year. This adjustment is the result of an insurer using current data to estimate how much your group should pay for its coverage.
The Reasons For The Rising Costs Of Healthcare
In recent years, the cost of offering health insurance seems to be on a never-ending upward trend. That perception isn’t an illusion – rising healthcare premiums are a real trend instigated by a variety of factors.
Increase in medical expenses
Demand for medical services has seen a big increase due to government programs such as Medicare and Medicaid. Many individuals who lacked coverage are now on these programs. This rise in demand and hospital visits effectively causes a similar rise in medical care costs and premiums. Prescription drug spending is also on the rise, which adds yet another layer to why the costs of health insurance keep increasing.
Population growth
Sometimes rising healthcare costs is simply a matter of having more patients. Our population continues to grow, which simply leads to greater national health expenditures. As a result, the overall population increase puts a greater strain on the healthcare system and leads to higher operational costs that impact everyone’s premiums.
Advancing age of population
The population of the United States is not only increasing, but also aging. As of 2020, there were approximately 47 million people in the United States over the age of 65. As recently as the year 2000, this number was only 31 million. The aging of the population won’t slow down anytime soon, either. It’s projected that our population will include 65 million people over the age of 65 by 2040.
With an aging population comes increased healthcare expenses. The older we get, the more medical issues we face. Therefore, a country whose senior citizen population is increasing is going to see hospitals that are hit hard on resources. In addition, the average group age can increase, leading to a more direct impact on your small business’ premiums.
Increase in chronic illness
As a nation, we are facing more chronic diseases now than ever before. The largest culprit is diabetes, followed by high blood pressure and high cholesterol. Simply put, the growth of chronic illness in the country leads to long-term care and greater costs for constant coverage to treat these conditions.
How Can a PEO Help Lower Healthcare Premiums?
A Professional Employer Organization (PEO) allows businesses to balance the benefits of group health coverage with the costs of health care spending. A PEO like GMS can help you offer top-tier coverage through more affordable insurance options. This cost-effective approach is made possible through both economy of scale and expert benefits administration.
Increased buying power
When you partner with a PEO, you aren’t buying group health insurance on your own. One tremendous benefit of a PEO is that it represents many organizations rather than just yours. This network of relationships means that a PEO can treat several companies as a single group while dealing with insurance companies. This grouping of organizations means that your small business can see the same types of benefits and cost savings that can typically only be obtained by larger corporations.
More importantly, a PEO will split its portfolio of organizations into separate groups based on their own demographics. This means that your company will not be grouped in with every other company under the umbrella of your PEO, but instead will be treated based on your own group’s ratings. This means you will see the lowest cost possible, without cutting back on your actual coverage.
Benefits administration and payroll
A PEO can also help ease your administrative burden by enabling your healthcare admin and payroll to integrate with one another for a streamlined process. For example, payroll deductions will be set up automatically when new employees are onboarded and opt into health insurance. Paycheck deductions can be automated, including determining what should be pre-tax and post-tax.
The process of employees enrolling in benefits or renewing during open enrollment can also be simplified by a PEO. Dedicated account managers and online systems make it simple to educate employees on their options and help them choose their coverage elections in the same online portal.
In short, a PEO makes your benefits administration simpler and more cost-effective. It’s almost a full-time job to simply deal with the health benefits for your employees. That’s why our experts can help you invest in quality, affordable coverage and save you valuable time by handling time-consuming administrative tasks.
Are you ready to streamline your administrative processes? Contact GMS now to talk with our experts about all your health insurance needs.