The average private-sector employer spends an average of $2.65 per hour, per employee, for health-insurance costs, according to Sept. 2020 data from the U.S. Bureau of Labor Statistics (BLS).
These aren’t low numbers. And the smaller a company is, the more consequential these numbers get.
The worst part: these costs tend to rise. Every. Single. Year.
In 2021, employer expenses for health insurance are expected to rise by 3.9 percent, according to Mercer’s National Survey of Employer-Sponsored Health Plans. This increase is in line with the average growth in annual health-insurance costs that employers have experienced over the last several years.
Although this increase may seem like a modest figure at first glance, this upward trend spread out over a decade – and longer – adds up quickly.
That presents business leaders an ever-present challenge: how to contain the cost of employee benefits.
Why benefits costs keep rising – and are more challenging for small- to mid-sized businesses to control
Wondering how to contain the cost of employee benefits?
Unfortunately, increases in health-insurance costs are driven in part by factors outside a company’s control, such as:
- The rising cost of care (known as medical inflation)
- Expanding regulatory and reporting requirements
However, a major driver of increasing health-insurance costs is plan usage and claims history.
In presenting renewal rates, insurance companies make assumptions about the next 12 months based on patterns that were established in the previous 12-month period.
As with car insurance:
- With more claims, the cost of coverage increases.
- With fewer claims, the cost of coverage declines.
It’s a predictable fact that health-insurance costs will rise. However, the extent of the increase is a bit harder to forecast. After all, life happens. It’s not easy for businesses to predict accidents, injuries and illnesses, or their frequency, over the course of a year.
Additionally, small to mid-sized businesses are often short on time and staff, and can lack the bandwidth, resources and expertise to:
- Research market rates.
- Comb through data within end-of-year claims reports and proposals for upcoming years.
- Identify discrepancies or inaccuracies that could ultimately reduce costs.
And, because of their lower numbers of employees, small and medium-size businesses tend to struggle in the negotiation of competitive rates. They simply lack the necessary leverage in the marketplace.
As a result, the National Conference on State Legislatures reports that small businesses pay an average of 8% to 18% more than larger organizations for the same health-insurance policy.
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