As group health insurance premiums rise each year, employers look for solutions to mitigate their increased costs. An emerging trend this year is “premium holiday”, which insurers are offering to make it seem like employers can save on coverage.
In reality however, this price adjustment trend rarely results in long-term savings and can easily result in employers paying more.
Premium Holidays Rarely Offer Sustained Savings
A “premium holiday” usually provides a break on premiums for one month, thereby seeming to reduce an employers’ health insurance costs for the year. Most of these programs skip an entire month’s premium for the first year that coverage is in place, although a few may offer a one-month discount instead.
However, these price adjustments rarely deliver on their promise of reducing overall costs.
Plans that offer a so-called “premium holiday” frequently come with increased costs both in the upcoming plan year and in any years thereafter.
For the upcoming year, a premium holiday can be used to make a policy’s annual premium appear artificially low. Offering a one-month discount on a policy that’s seeing a major rate increase can mask the increase to a significant degree.
In reality, the increase is usually still quite substantial even after the one-month premium discount is taken into account.
In future years, a policy’s premium can increase dramatically when a one-month premium holiday isn’t included in the renewal. When employers are no longer given a discount, their next policy premium not only increases by the annual rate increase, but they also have to take into consideration that they are paying for twelve months rather than eleven.
The result is that premium holidays often result in employers spending more on health insurance than they intend to or realize.
The Increased Costs That Premium Holidays Mask Are Significant
While the exact amount that employers end up paying for health insurance is specific to each employer and its policy, the increased costs that premium holidays mask can be substantial. To see just how much this scheme can actually cost an employer, consider the following example of an employer who pays $120,000 in annual health insurance premiums.
The employer is facing a rate increase of 24 percent for 2021, which equates to a $28,800 increase for the year based on its 2020 premium of $120,000. As an incentive to renew, the employer is offered a one-time premium holiday that saves it $12,400 in 2021.
Although this looks attractive at first glance, the total premiums for the year come to $136,400 – an increase of 14 percent!
Moreover, the employer’s premium increase for 2022 will be based on a premium of $148,800, even though the employer only paid $136,400 in 2021. Even if the insurer does not raise rates in 2022, but only eliminates the premium holiday, the employer will pay $148,800 in 2020, an increase of almost 10% percent.
There Are Other Ways to Mitigate Rising Health Insurance Costs
For an employer faced with rising health insurance costs, there are other ways to mitigate this expense. One way is through a self-funded health plan. A self-funded health plan can reduce an employer’s cost of providing health insurance to its employees, while still providing high quality coverage.
Contact us to learn more about how self-funded health plans can help mitigate these rising insurance costs. One of our team members would be happy to discuss the benefits of a self-funded health plan for your business.