Family Coverage Costs Hit Small-Business Workers Hardest: Study

A new study has found that most employer-sponsored family health plans are increasingly unaffordable for workers due to rising costs and them footing a significant part of the premium, even with employer assistance.

Workers at smaller firms, defined as those with fewer than 200 employees, are especially affected as they typically have to pay a larger share of the family coverage premium than their large-employer counterparts (38% vs. 25%), according to the 2023 Kaiser Family Foundation “Employer Health Benefits Survey.”

The amount workers at small firms pay for single-only coverage is comparable to what their counterparts at larger firms pay (17% of the premium vs. 18%).

While family-plan premiums are similar for workers in small and large firms ($23,621 compared to $24,104 on average), due to the higher percentage cost-sharing, employees in small firms are paying significantly more for their share of the premium ($8,334 per year vs. $5,889 at larger firms), according to KFF. Moreover, 25% of workers at small firms pay over $12,000 yearly for family coverage, excluding deductibles that are also often higher.

For low-wage workers that’s a tall order, made worse by the fact that those at small employers typically earn less (an average of $44,600 a year vs. $63,200 for workers at larger firms).

On top of higher premium layouts, workers in small firms may also pay higher deductibles and have higher out-of-pocket medical costs:

  • About 59% of employees in small firms have a family-plan deductible of at least $3,000 before the plan will start covering most services.
  • Some 34% of workers in small firms have a family-plan deductible of at least $5,000, and it may be higher if multiple family members have to spend towards the deductible during the plan year.

What small firms can do

While small employers really can’t do anything about rising group health plan costs, they can take steps to ease their employees’ premium obligations and out-of-pocket costs:

Assume more of the premium — If it’s within their budget, they can increase the amount of family coverage premium they will cover. This is not something that is feasible for many companies, but for those who are interested in attracting and retaining talent who have their own families, they may need to.

Offer more plans with narrow networks— Narrow networks do reduce premiums, and that’s a huge draw for both employers and their employees. But consumers also benefit from these plans through lower overall out-of-pocket expenses.

Narrow networks contain longer-term costs by encouraging individuals to develop a relationship with their primary care providers. Cost savings come from increased use of PCPs and decreased, or more-efficient, use of specialists.

These plans provide a way to contain costs without sacrificing care, but because they’re comprised of local, community-based medical providers they’re best for a workforce that works at a single location and therefore lives within proximity to the job site/office.

Offer high-deductible health plans — A high-deductible plan’s upfront costs are less expensive than a preferred provider organization or health maintenance organization. According to KFF, the average HDHP family coverage costs $22,344 a year, nearly $3,000 less per than a PPO plan and nearly $1,500 less than an HMO.

With that lower premium, employees can set aside additional funds into an attached health savings account, a tax-benefited vehicle that is funded through pre-tax payroll deductions. HSA funds can be used to reimburse for health care expenses, including those towards deductibles.

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