Generous employee benefits can be a great differentiating factor for employers looking to recruit and retain staff - and so most employers strive to offer the best possible benefits they can afford. Typical employee benefits costs include the resources that companies will have to spend on insurance premiums AND benefit enrollment and administration.
Of course, when selecting benefits, companies should also consider the amount employees will be contributing to coverage. Companies may want to have employees offset some of the cost, but at the same time ensure that they will find the cost affordable and still a good value. Today, most employees do expect to contribute towards premium costs, but they may gripe if they have to spend too much. To understand this delicate balance, let’s consider some examples of average costs and how much other employers are spending on benefits.
According to a Bureau of Labor Statistics (BLS) press release from 2015, the average American worker cost just about $33 an hour. The majority of this cost is salary, however, benefits accounted for over $10 of the total. So, just under a third of employment costs are typically allocated to employee benefits.
Health Insurance Average Costs
The chart below was taken from a Kaiser Family Foundation 2015 study of employer health insurance.
These are some significant statistics from that report:
- The average annual individual premiums were $6,251 and family premiums were $17,545.
- The average annual employer contribution for an employee’s individual plan was $5,179 and their contribution for an employee’s family premium was $12,951.
- The average employee contribution was $1,072 for an individual plan and $4,594 for a family plan.
- Health insurance premiums have risen overall by 61 percent over the past ten years.
For planning purposes, average health care costs tended to be higher at large companies than small ones. It's also important to notice that the cost of health insurance also varies by plan type. For instance, family coverage for PPOs was most expensive with an average yearly premium of over $18,000, including the employer and employee portion of the bill. On the other hand, high-deductible major medical insurance averaged just under $16,000 a year, not including money contributed to associated HRA savings accounts.
With that in mind, it's also important to note that a number companies surveyed found cheaper options. Just about 22 percent found individual premiums for $5,000 or less and family premiums for $14,000 or less. On the other end of the scale, companies can spend more than the average. It’s important to work with a benefits broker on employee benefits to ensure they’re doing what they can to find the best coverage at the cheapest price.
Realistically, the prices discussed above all revolve around health insurance premiums. If we take into account dental, vision, life, or supplemental coverage like a hospitalization or cancer policy, and a company decides to contribute towards those policies’ premiums, the cost of employee benefits can skyrocket.
The Cost of Administering Benefits
Besides the actual price that companies pay for benefits premiums, there will be costs associated with administering benefits too. This may include educating employees about their options, letting them sign up and enroll in benefits, handling ongoing administration as employees’ life change events come up, administering COBRA for qualified beneficiaries, and providing some sort of customer service to answer questions and help with claims. Some companies may handle a number of these functions internally, outsource them, or rely upon a benefits broker to provide assistance.
Technology like carrier connection, benefit enrollment, and COBRA administration solutions have allowed many progressive companies to reduce the cost of employee benefits administration. Just as millions of Americans can sign up for individual health insurance online at the marketplace, millions of employees can use online services to learn about, select, enroll in, and get help with their benefits.
Gone are the days of companies having to develop their own technology or even worry about installation and maintenance. Companies of any size can turn to a provider who can grant their employees access to solutions that streamline and automate the traditionally manual and paper-intensive processes associated with benefits.
Consider the results from this CFO research report on the costs per employee per year regarding self-service vs. manual benefits enrollment:
The highlighted cost of $109.48 above is associated with manually enrolling a single employee in benefits each year, and does not include the additional administration cost if an employee experiences a life change event. Deploying technology that allows for employee self-service dramatically reduces the cost of enrolling an empoyee in benefits by more than 80 percent.
Now, let’s look at the concept of premium leakage costs. To do this, first we need to understand the national average turnover rates according to CompData Surveys.
Based on this data, across the United States, regardless of industry, there is a 15.7 percent turnover rate. Think about what happens when an employee is terminated, whether the employee leaves on their own accord, or is let go by the company… Is the first thing the company thinks to do is call the insurance carrier and say “hey, stop billing me an insurance premium for this employee!”? Most likely not. And especially not for smaller companies that don't have people solely focused on benefits administration. Whoever is doing the administration for that company may not realize they are paying for a terminated employee's premiums until they have a chance to do premium reconciliation.
With this logic, we take the average premium costs paid by companies for a single employee, the national average turnover rates, and assume a five percent premium overpayment for this group (which is less than a month’s premium payment). And with that, we end up with a cost of $69.75 per employee per year across the entire company.
In total, we end up with almost $9,100 per employee per year between health insurance premium costs, manual employee benefit enrollment and administration, and overpayment of premiums.
The cost of employee benefits can be extremely high – a great forward-thinking, technologically savvy benefits broker can help navigate the complexity of benefits, remain compliant, and provide attractive benefits options for employees, all while keeping costs as a low as possible.