America’s healthcare insurance costs for small businesses continue to climb. In fact, earlier this year, “insurers had proposed a median 18 percent increase in premiums for next year, citing higher medical costs, a sicker risk pool due to the enhanced subsidy expiration, and other factors” according to the CAP. Which has left small businesses feeling the strain of providing affordable health insurance to their employees. While offering healthcare benefits remains crucial for attracting and retaining top talent, the rising expenses force many employers to seek creative solutions to manage costs.
Tips for Reducing Rising Health Insurance Costs
Here’s the good news: there are effective strategies that could offer cost savings while providing your employees with meaningful, personalized healthcare options. In this blog we will explore real-life scenarios where these alternatives have helped businesses and employees alike.
Individual Coverage Health Reimbursement Arrangement (ICHRA): A Custom Solution for Small Teams
Scenario: A small business marketing agency with 10 employees found itself struggling to afford a traditional group health insurance plan as premiums rose by nearly 15% year-over-year. An Individual Coverage Health Reimbursement Arrangement (ICHRA) can provide small businesses with a flexible and cost-effective way to offer health benefits to their employees while reducing overall health insurance costs. Instead of purchasing a traditional group health insurance plan, which can be expensive and restrictive, ICHRA allows employers to set a fixed budget for employee health benefits. Employees can then use these tax-free reimbursements to purchase individual health insurance plans that best suit their needs, often from a variety of options in the marketplace.
How It Helped:
- This approach not only gives employees more control over their coverage but also eliminates the risk of premium increases for the employer, as costs are predictable and capped.
- ICHRA enables small businesses to avoid the administrative burden of managing a group plan and ensures compliance with ACA requirements, making it an efficient, budget-friendly solution to providing health benefits.
- The small business allocated $500 per month per employee for health insurance reimbursement.
The Takeaway: Leveraging health reimbursement options like ICHRA can control costs while still offering employees great options for their healthcare needs.
Self-Funded or Partially Self-Funded Plans: Taking Control of Costs
In a self-funded (or self-insured) healthcare plan, the employer takes on the financial risk of providing healthcare benefits to its employees. The employer pays healthcare claims as they are incurred, rather than paying fixed premiums to an insurance company. While a Third-Party administrator (TPA) is hired to handle administrative tasks (e.g., processing claims, managing networks). The employer will also typically purchase stop-loss insurance to protect against catastrophic claims. If claims are higher than expected, the employer is responsible for covering the costs.
Scenario: A 40-person law firm decided to switch from a fully insured plan to a self-funded model with stop-loss insurance to limit risk. While this approach initially felt risky, it allowed the firm to only pay for actual claims rather than inflated premiums.
In the first year, claims were lower than expected, and the firm saved $50,000 compared to their previous plan. Stop-loss insurance protected them from any catastrophic claims.
How It Helped:
- The firm gained more transparency into how healthcare dollars were spent.
- Savings were reinvested into employee perks, such as additional paid time off.
The Takeaway: Self-funding isn’t for everyone, but for a small businesses with younger or healthier workforces, it can lead to significant savings. You care read more about how AUI helps with Self-Funded plans on our blog HERE.
Level-Funded Health Plans: A Win for Predictability
Level-funded health plans combine self-funding and fully insured approaches. This allows employers pay a set monthly amount for expected claims, administrative fees, and stop-loss insurance. A level-funded healthcare plan is a hybrid of self-funded and fully insured plans, designed for smaller businesses that want to self-insure while limiting financial risk. A Level-Funded plan provides budget stability, potential surplus refunds if claims are low, or adjustments if high. Employers also benefit from clear monthly reports and can bypass some state-mandated benefits under ERISA.
Scenario: A 35-person construction company was tired of unpredictable premium hikes in their fully insured group plan. They switched to a level-funded health plan, which combined fixed monthly costs with the potential for refunds if claims were low.
At the end of the first year, claims were 20% lower than projected, and the company received a $15,000 refund. Employees enjoyed the same level of coverage they had before, with no disruption to their care.
How It Helped:
- The company saved money while avoiding the risks of fully self-insuring.
- Employees experienced no change in the quality of their benefits, and the company used part of the refund to expand wellness initiatives.
The Takeaway: Level-funded plans provide cost predictability with the bonus of potential refunds, making them ideal for businesses with stable claims history.
High-Deductible Health Plans (HDHPs) with Health Savings Accounts (HSAs): Empowering Employees to Save
Scenario: A 20-employee tech startup introduced a high-deductible health plan (HDHP) to combat rising premiums. To make the shift more palatable, they paired the HDHP with a Health Savings Account (HSA), contributing $1,000 per year to each employee’s HSA.
One employee used their HSA to cover unexpected dental surgery, while another built up their account to $4,000 over three years, creating a safety net for future medical expenses. The company saved 18% on premiums compared to their old plan.
How It Helped:
- Employees appreciated the tax-free savings benefits of the HSA and the employer contributions.
- The company’s overall healthcare costs dropped, freeing up funds for other business investments.
The Takeaway: HDHPs with HSAs are an excellent way to reduce premiums while giving employees tools to manage out-of-pocket expenses.
Utilizing Telemedicine Services: Affordable, Convenient Care
Scenario: A small retail business with 15 employees noticed that many workers were skipping doctor visits due to cost or scheduling conflicts. To address this, they added telemedicine services to their benefits package, costing just $10 per employee per month.
Within the first six months, 70% of employees used telemedicine for minor issues like colds, allergies, and mental health consultations. This reduced absenteeism and prevented costly urgent care visits.
How It Helped:
- Employees got the care quickly and conveniently, often during their lunch breaks.
- The company saved money by avoiding the higher premiums of a more comprehensive group plan.
The Takeaway: Telemedicine is a low-cost, high-impact way to provide accessible healthcare, especially for routine or non-emergency needs.
Wellness Programs: Investing in Long-Term Health
Wellness plans have been proven to offer numerous benefits, including improved employee health, increased productivity, and long-term cost savings. Today, plans often include initiatives like fitness programs, smoking cessation support, mental health resources, and preventive care to your health care options. All of which are aimed at reducing health risks and promoting healthier lifestyles. Healthier employees are also more productive, take fewer sick days, and experience reduced absenteeism, which translates to improved workplace efficiency.
Scenario: A 50-person manufacturing company introduced a wellness program focused on preventive care, including free flu shots, smoking cessation support, and a partnership with a local gym for discounted memberships.
Over two years, the number of employees requiring expensive emergency care dropped by 30%, and the company’s health insurance premiums increased by only 3% compared to the industry average of 10%.
How It Helped:
- Employees became more engaged in their health, leading to fewer claims.
- The company built a culture of wellness, improving morale and productivity.
The Takeaway: Wellness programs reduce long-term healthcare costs by encouraging healthier lifestyles. You can read more about wellness programs on our blog HERE.
Association Health Plans (AHPs): Joining Forces for Better Rates
An Association Health Plan (AHP) is a type of health insurance that allows small businesses, self-employed individuals, and organizations within a shared industry or geographic area to band together and purchase health coverage as a larger group. A good example of this type of organization would be a chamber of commerce. All the members grouped together have more buying power like a larger company would. These plans are governed by specific federal and state regulations and are designed to help small businesses reduce costs while offering competitive healthcare benefits to their employees. In addition to cost savings, AHPs also simplify the administrative burden for individual businesses, making them an attractive option for many small employers looking for affordable and reliable health insurance solutions.
Scenario: A group of 12 small accounting firms in the same state formed an Association Health Plan (AHP) to negotiate better rates with insurers. By pooling their employees into one large group, they accessed comprehensive coverage at significantly reduced rates.
For example, one firm’s family plan premiums dropped from $1,500 to $1,200 per month.
How It Helped:
- Employees appreciated the enhanced coverage options.
- Employers saved on premiums while still offering competitive benefits.
The Takeaway: AHPs allow small businesses to level the playing field with larger companies by reducing costs through collective bargaining.
How Can AUI Help Your Small Business with Creative Alternatives for Rising Health Insurance Costs?
Rising healthcare costs are scary for anyone to think about. It doesn’t matter if you are a small business owner or an individual. Healthcare costs are increasingly a challenge for everyone, but they’re not insurmountable. By embracing flexible, innovative strategies like HRAs, telemedicine, and wellness programs, and learning from real-world success stories businesses can reduce costs while prioritizing employee health and satisfaction.
The key is to work with a healthcare broker like our team at AUI. We can help you to find great solutions to your workforce’s specific needs. With the right approach, healthcare benefits can remain a competitive advantage rather than a financial burden. That is what we do every single day. Our commitment to our clients is that we go into the trenches together and find solutions together no matter what. Learn more about why we are so passionate about helping small businesses and individuals like you with health insurance. Contact us today to get started.
