5 Proven Strategies to Reduce Small Business Health Insurance Costs

There's no question about it — small business health insurance costs can be a major concern for business owners. In fact, KFF, the leading health policy organization in the U.S., found employers spent nearly $17,393 per employee for family health insurance coverage premiums in 2023. This means an employee earning $50,000 will cost the company more than $70,000 annually in just salary, taxes and insurance — and that doesn't include a number of other expenses you can expect to incur.

With the rising cost of small business health insurance, what options do employers have to keep costs predictable and affordable? Here are five of the most successful strategies we've helped employers implement.

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1.  Reevaluate & Compare Small Business Health Insurance Costs Annually

Even if you don't plan on changing health insurance providers, it's important to obtain quotes from a number of providers every year. Keeping tabs on small business health insurance costs and market options can provide leverage for negotiation.

This process may be quite tedious as extensive information about your workforce is required in order to produce a quote, but working with a professional employer organization (PEO) can help alleviate the burden.

Keep in mind how important it is to compare apples to apples; if you're trying to get better premiums on a low-deductible plan, ask for competitor quotes on an identical or very similar plan.

While most benefits providers will ease up on premiums when they know you're looking elsewhere, some won't, and that's okay, too. Employers often change benefits providers when they realize the options they have to lower small business health insurance costs,  and how it can improve both their bottom line and their employees' health, wellness and access to services.

2.  Lower the Cost of Small Business Health Insurance with a Wellness Program

While establishing a wellness program takes time and effort in the beginning, it can reduce costs overall by promoting preventive healthcare — like physicals, mammograms and lifestyle changes.

Wellness programs are certainly a 2024 benefits trend, but the concept isn’t all fluff. According to a study published in the Journal of Health Affairs, every $1 spent on workplace wellness programs results in a decrease of $3.27 in medical costs and $2.73 in costs related to absenteeism. 

While some wellness programs pay incentive dollars out to employees who participate, others don't and still drive positive results. When it comes to wellness, even a low spend (with a bit of strategy) can lead to big savings on the cost of small business health insurance. If you don't have the internal resources, a PEO or third-party wellness vendor can help.

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3.  Look at the Whole Health Insurance Package

Conducting an annual survey to find out which benefits are valued by employees and which benefits aren't can help you invest in the most meaningful areas and get the highest return on investment.

Learning what employers in your area are offering can be helpful, too, as they're often your competition when it comes to hiring top talent in the region.

These two measures alone often give employers the opportunity to refine their benefits offering, save money on small business health insurance costs, and increase their return.

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4.  Be Inclusive When Thinking About Cost & Return

Managing the cost of small business health insurance requires an all-inclusive look at ROI. When determining the potential ROI for a benefit change, keep in mind that adding, taking away, increasing or reducing benefits can have an impact in areas of the organization you may not expect, such as:

• Recruitment Costs 

  Better benefits make it easier to recruit top talent.

• Time-to-Fill

  A competitive benefits package can reduce the time to fill open positions. In organizations with shift work, this can also reduce overtime and incentives when staff are required to pick up open shifts in the meantime.

• Engagement

  Employees who are happy with their benefits package often feel more valued overall and are more invested in their work.

• Productivity

  Engaged employees perform better overall and use their time more wisely than disengaged employees.

• Quality

  Engaged employees do better work overall.

• Absenteeism

  Employees with access to healthcare services and wellness programs are less likely to call in sick (or worse, show up sick).

• Customer Satisfaction

  A great benefits package can lead to healthy, happy, engaged employees, improving the customer experience.

Your benefits package is a critical component of your overall employee experience and, subsequently, your customer experience. 

5.  Manage Small Business Health Insurance Costs in a Big Way: Use a PEO

Engaging the services of a PEO can take the guesswork out of managing small business health insurance costs and provide your company the logistical support it needs to design and implement practices that work for your employees and your bottom line.

The cost of small business health insurance premiums is calculated using a multitude of factors, but one of the most significant is the size of an employee pool. This is why mega-corporations save hundreds or even thousands of dollars per employee on premiums, and small businesses suffer.

The trick to saving money on employee healthcare comes down to negotiation strength and bargaining power. Many of the small employers who offer healthcare are doing so by leveraging the negotiating power of a group of other employers through an aggregation strategy. 

When small businesses partner with a PEO for health insurance, they avail themselves to the PEO’s larger pool—and therefore, the PEO’s bargaining power.

In this scenario, the PEO becomes the employer-of-record for benefits administration purposes, and as an added benefit, the PEO can handle a wide range of related tasks for the small business, such as payroll, tax administration, and administrative support. 

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Axcet: Your Partner for Managing the Cost of Small Business Health Insurance

Lowering small business health insurance costs is no easy feat, but Axcet HR Solutions’ employee benefits experts are here to help. Axcet HR Solutions is a certified professional employer organization specializing in helping small businesses and start-ups with all of the human resources tasks they need to handle, so they can focus on growing and scaling their core business. 

Interested in learning more about how Axcet can help? Schedule a consultation with us today.