Scaling a workforce is an exciting prospect for any business. More employees equal more productivity, more revenue, and greater growth potential.
But (you knew this was coming, right?) it also means more costs.
And if those costs aren’t properly accounted for in the budget, that growth can quickly turn into a financial nightmare.
The costs and considerations for providing employee benefits, especially health insurance, are a common blind spot for many scaling businesses.
In this post, we’re going to cover…
- Why Health Insurance Costs Matter When Scaling
- The Real Numbers Behind Employer Health Coverage
- How To Budget For Large Group Health Insurance
- Smart Strategies To Control Benefit Costs
… so you can properly budget for health insurance as your business grows.
Why Health Insurance Costs Matter When Scaling
Expanding the workforce has been top of mind for you for a while now.
After all, growth is the point of a business, right?
The focus is on hiring the right people. Negotiating competitive salaries. Finding office space to accommodate more employees.
But… health insurance and other employee benefits often take a back seat.
Until it’s too late and your growing workforce ends up costing a lot more than planned.
Health insurance is one of the largest recurring expenses that any employer will have.
As you grow, those costs increase as well. Businesses with 50 or more full-time employees that purchase large-group health plans in particular face unique challenges when it comes to budgeting for growth. Plan premiums are large. And they only get more expensive each year.
Understanding those costs and planning for them is critical before scaling the business. Without budgeting and financial preparation, a business that’s expanding too quickly can quickly become overextended.
The Real Numbers Behind Employer Health Coverage
Curious about what employers are actually paying for health insurance these days?
Here are some mind-blowing numbers from the most recent surveys…
The average annual premium for employer-sponsored health insurance now stands at $9,325 for single coverage and $26,993 for family coverage, according to the KFF Employer Health Benefits Survey. That’s a 6% increase over last year’s figures.
Family coverage is up for the first time in two decades, with costs increasing by 6% or more for three straight years.
Employers are paying on average about 84% of premiums for single coverage and 74% of family plan premiums. That means for every employee receiving family coverage, the employer pays over $20,000 per year.
Significant, right?
Let’s say you’re a business looking to scale from 50 to 150 employees, and you’re budgeting for the average cost of adding 100 employees with family coverage.
By these numbers, it would come to about $2 million in new annual health benefits costs.
How To Budget For Large Group Health Insurance
If health insurance is a big part of your budget, it’s important not to guess when it comes to budgeting for it.
Smart employers take a data-driven approach.
Here are some key steps to getting it right…
Calculate Per-Employee Costs
The most basic step is to figure out the average cost per employee for your health coverage. This will include things like:
- Monthly premium contributions
- Administrative fees
- Wellness program costs
- Any expected claims for self-funded plans
Once you have the per-employee average, just multiply it by the number of new employees. Then add a buffer for premium increases.
Plan For Annual Premium Increases
Premiums are never flat year over year.
CBS News is projecting that costs will continue to climb by between 6% and 7% for employers in 2026, which is more than double the current rate of inflation.
Employers have a tendency to budget for flat or just slightly increasing costs when it comes to benefits. That’s a mistake that can land them in financial hot water within a year or two.
Factor plan design options into your budgets as well.
For example, high-deductible health plans with savings options will usually have lower monthly premiums than PPO plans. Understanding those trade-offs helps in the decision-making process.
Smart Strategies To Control Benefit Costs
Employers don’t need to take on all these costs blindly.
In fact, there are a number of tried-and-true cost control strategies that can help keep employer-sponsored health insurance affordable and sustainable.
Offer High-Deductible Plans With HSAs
Health Savings Account (HSA)-enabled plans are becoming increasingly popular.
These accounts allow employees to pay for qualified medical expenses with pre-tax dollars, which can save them money on taxes. HSAs are only available with high-deductible health plans, but the accounts can result in lower premiums for employers.
Employers who offer HSAs see higher employee enrollment numbers, better retention, and greater consumerism among their workforces. In 2023, 28.6% of covered workers were enrolled in HSA-qualified health plans.
Implement Wellness Programs
It’s cheaper to prevent health problems than it is to treat them.
Employers that take a proactive approach to wellness and encourage healthy behaviors among their employees will see a corresponding drop in health care claims.
Offer employees the following, for example:
- Health risk assessments
- Smoking cessation programs
- Weight management programs
- Mental health resources
Explore Self-Funding Options
Self-funding and level-funding can offer greater budget flexibility and cost savings.
With self-funded plans, employers don’t purchase traditional health insurance but instead pay for employee claims directly. Employers still often contract with a third-party administrator to handle plan operations.
Self-funding is particularly attractive for larger employers because it offers more predictability when it comes to budgeting for health care costs. Roughly 80% of covered workers at large firms are enrolled in self-funded health plans.
Negotiate With Multiple Carriers
Insurance carriers know that employers don’t like shopping for health insurance every year.
Never accept the first offer you get. Make carriers compete for your business and you can often save a lot of money.
Employers who go out of market and shop around for better rates each year often save significant amounts of money over the long haul.
Review Coverage Regularly
Coverage that made sense three years ago may not work today.
Carriers change their plans every year, with changes in provider networks, coverage, and cost-sharing.
Employers that review their plans each year are better equipped to spot savings opportunities and make necessary adjustments to keep their health benefit programs both sustainable and competitive.
Common Budgeting Mistakes To Avoid
Businesses that are growing the workforce often make the same mistakes when budgeting for health benefits.
Most of these errors are completely preventable.
Some of the most common include…
Underestimating The True Costs
Premiums are only part of the cost of offering health insurance.
Administrative expenses, regulatory compliance, and penalties for non-compliance all add to the bottom line.
Ignoring Employee Contributions
Salary and wages aren’t the only cost to an employee. How much employees contribute to their own coverage matters for retention and satisfaction.
Making people pay too much can lead to a higher turnover, which is a problem for any business.
Failing To Plan For Growth Phases
Employers with 50 or more full-time employees have additional requirements they must meet.
This is known as the Affordable Care Act’s employer mandate.
Crossing certain size thresholds means more costs and more complicated requirements. Failing to plan for this phase of growth can create budget issues.
Wrapping Things Up
Scaling the workforce is an exciting time for any business.
The financial commitment and considerations of providing employee health insurance are a common blind spot, however.
Budgeting for large group health insurance, in particular, is an often-ignored task for many businesses that find themselves in trouble down the road.
Large group health insurance represents one of the most significant expenses an employer can incur.
It’s essential to understand the current cost landscape and budget accordingly.
Let’s recap:
- Know the real numbers behind employer health coverage
- Build annual premium increases into multi-year budgets
- Explore cost-control strategies like self-funding and wellness programs
- Avoid common budgeting mistakes that catch growing businesses off guard
Successful companies that grow for the long term are the ones that plan for all costs up front. Health insurance benefits shouldn’t be an afterthought in that planning.
Proper budgeting now means that exciting growth can be financially sustainable for years to come.
