Typical Plan Costs
What Should You Expect to Pay?
Paperwork and Plan Administration
Can't Afford It? You Have Options

The cost of health coverage is the main drawback for many small employers. Still, it may be more affordable than you think.

Below we look at typical costs of health insurance plans, as well as the paperwork and administration that come with the territory.

Typical Plan Costs

Before looking at some average figures for health care plan costs, keep in mind that many employers require employees to pay part of the monthly premium, often up to half the premium total. When we mention figures below, be sure to pay attention to whether we're discussing totals or just the employer's contribution.

In 2003, the total average health care premium cost in California was about $3,100 for a single employee. Before you gasp for breath, keep the following in mind:

• The above figure includes both the employer and employee contribution. In most businesses, employers share the cost with employees. Employers typically pay from 50 to 80 percent of the cost of insurance. However, recently a new health plan has become available that allows employers to pay as little as 25 percent of the cost of insurance. Talk with a broker or agent to find out about all your options.
• This number is an average, which reflects many plans that are considerably more expensive--and many that cost less.
• Don't forget, whatever the employer pays is fully tax deductible as a business expense.

Here's another way to look at costs: Health insurance premiums typically account for 8 to 15 percent of payroll for many small businesses.

What Should You Expect to Pay?

Broadly speaking, employers should budget a minimum of $1,600 to $2,500 per employee per year, for most types of coverage. Also keep in mind:

• Smaller employers (those with five employees or fewer) typically get charged a bit more by insurers. They should increase the ballpark figure above by about 10 percent ($160 to $250).
• All employers should expect premiums to increase 10 percent per year (or more) over the next one to three years.

In the tool box, use the "Plan Type/Price Range Generator" to see the types of plans you can offer and their associated costs.

Paperwork and Plan Administration

Sponsoring group medical coverage requires paperwork. While these tasks usually aren't too burdensome, the time and money you'll need to spend managing your plan is a cost that you need to weigh along with the cash costs.

Paperwork and employee relations management comes into play:

• At the beginning when you introduce the health plan to employees.
• Once a year for open enrollment.
• With ongoing maintenance, including:
  • Adding/deleting employees and family members.
  • Making premium payments.
  • Dealing with problems (billing, eligibility, claims).
  • Collecting contributions and managing the payroll to accurately reflect employee contributions.
  • Managing the paperwork for new and terminating employees.

Keep in mind that brokers often provide many of these services. When working with a broker, be sure to discuss which administrative duties the broker will assume and which will remain your responsibility.

We discuss working with brokers in Part Two: Getting Covered.

Can't Afford It? You Have Options

If you're ready to throw your hands up because you can't afford insurance right now, don't despair—you have some options. One is to consider some cost-saving strategies to find lower-cost plans.

In the tool box, see "Cost-Saving Strategies" for more tips.

In addition, there are some alternatives to group coverage that may make it possible for you to arrange for coverage for some of your employees or their families, at little or no expense to you. We introduce you to some of these alternatives later in Part One.