Employer health insurance costs are rising, and employees at small companies bear a greater burden than their counterparts at large employers, according to the 2022 KFF Employer Health Benefits survey.

On average, employees at small companies pay $2,000 more for family coverage and face deductibles that are $1,000 higher.

This report highlights the disparities in benefits between small and large employers.

Overall, the average annual deductible for single coverage is $1,763, up 61% since 2012 ($1,097). And average annual family premiums are $22,463, of which employees contribute on average $6,106, with employers paying the rest.

“Employers are already concerned about what they pay for health premiums, but this could be the calm before the storm, as recent inflation suggests that larger increases are imminent,” KFF President and CEO Drew Altman said. “Given the tight labor market and rising wages, it will be tough for employers to shift costs onto workers when costs spike.”

This is an issue we see every year when employers are caught in a perpetually rising premium situation – they either eat the increase themselves or pass along a portion of it to employees. Neither option is a win, and no one is happy with the outcome.

In the big picture, premiums have been rising faster than inflation or wages. Since 2012, average premiums for family coverage have risen 43%, compared to inflation (25%) and wages (38%). This means that a greater share of workers’ wages today go towards health insurance than in the past.

Mental & Behavioral Health

Besides cost increases, employers also pointed towards ongoing Mental and Behavioral Health needs for their employees. 48 percent of large employers reported an increase in mental health utilization among employees and 29 percent said more workers are asking for family leave due to mental health issues.

The report also touched on Substance Abuse Disorders (SUD), with 43 percent of employers at least somewhat concerned about the growth of substance use among their workers. Only 14 percent have seen an actual increase in workers using substance use services, but it’s worth noting, especially if your industry is more susceptible to SUD issues with your workforce.

Trends in Self-Funding

Self-Funding and Level-Funding are key strategies for employers to reduce plan costs and enhance benefits. Across the entire workforce population covered with health insurance, 65 percent of workers are covered in a self-funded health plan in 2022. Self-funding is more common with larger employers because they have more employees to spread risk and the ability to negotiate with vendors, while small employers may face more challenges to self-funding their health plan.

Note that I’ll just refer to self- and level-funding collectively as self-funding; level-funding is a type of self-funding and I want to keep the jargon to a minimum. You can read more on the differences between self-funding and level-funding here.

We ourselves at the LBL Group and Acrisure have been part of the recent trend in helping small and mid-sized employers migrate to self-funded plans, as we see the burden that fully-insured health insurance premiums place on our clients.

If we break out small (under 200 employees) and large (over 200 employees), we see a 20% to 82% split in self-funded enrollment.

It makes sense that as firms increase in size, there is a greater likelihood that they self-fund their health plan. It is hard to apply this to any one company, however, as state dynamics may make self-funding more or less easy to do for the SMM employer.

In California, for example, employers have to retain much more risk than employers in other states due to SB 161, so we see less self-funding in the market among employers with under 200 employee lives. You can read more about the impact of SB 161 on California employers’ self-funding options here. But even among employers with 50 to 199 employees, 30% of covered workers are enrolled in a self-funded health plan.

How has this trended over time? Since the ACA went into effect in 2011, self-funded enrollment has increased by nearly 30% among workers for companies with less than 200 employees.

This is a big deal because of the propensity for employees to work for smaller firms. According to the US Census Bureau, companies with fewer than 500 workers employed 46% of workers in 2018, and under 100 employed 32% of workers.

The survey also has some interesting findings on the rates of self-funded coverage by region and industry. The figure that jumps out to me being in California is the much lower rates of self-funding in the Western region. I would connect this to the aforementioned SB 161 and the prevalence of Kaiser in the Western region as two causes for this trend.

When it comes to self-funding by industry, we see the lowest rates among agriculture/mining/construction (60%), service (54%), and finance.

Companies in the service industry typically have lower average wages, low contributions, and low participation, all of which make them not good candidates for self-funding. Ag, mining, and construction are cyclical and may struggle with volatile claims costs in a self-funded plan. And financial firms tend to just appreciate the easy button of rolling over their fully-insured renewal offer.

In contrast, self-funding is most common among firms in transportation, communications, and utilities (80%); retail (77%), and healthcare (74%). These industries tend to have intense competition for talent and margins that are enough to spend on benefits but not so high that they can ignore potential cost savings for their plans.

Posted by John Hansbrough in Behavioral Health, Business Strategies, Digital Health, Employee Benefits, Health Equity, Health Insurance, Healthcare Spending, News, Research, Self-Funding, Telehealth, Wellness