Getting Affordable Small Business Employee Health Insurance

Small business employee health insurance is mandatory in all states. Except for few agricultural, maritime or federally regulated industries, it is illegal to carry out business with employees if you do not have workers' compensation insurance or your business is not legally qualified as "self-insured'.

Exercising control over this necessary cost of small business employee health insurance is possible with an understanding of how the premiums are established and the factors that affect the same. The premiums are calculated using the following formula

Rate X $100 payroll X Experience Modifier = Premium

Now let's understand the two variable factors of rate and experience modifier individually.

Rate:

The State normally categorizes different industries and usually follows the National Council on Compensation Insurance (NCCI) in determining the classification and rate. This rate is based on various factors. For example, NCCI classification for clerical work, 8810, is usually the lowest, while the one for the construction trades (especially carpentry, 5645) is usually the highest because a carpenter's chance of getting hurt on the job in a job are much higher than a secretary.

Experience Modifier:

Experience modifier or the MOD, as it is usually referred to, is a numeric representation of your business's loss and claim history and its calculation differs with states. This clearly suggests that if your 'claims history' is low the MOD figure will decrease and if it is high then the MOD will increase. For example, a MOD of .90 acts as a 10% discount on the premium while a MOD of 1.10 acts as a 10% increase.

The final premium for small business employee health insurance is the multiple of rate and MOD applied to every $100 of the payroll. For example, a rate of .08 with a MOD of 1.00 results in $8.00 of annual premium for each $100 of payroll or $8,000 on $100,000 in payroll.

The knowledge of how the premiums are calculated in the small business employee health insurance brings us to the understanding that there is little control over the classification of the industry and the rate assigned by the state (except for being a part of recognized groups to avail of special discounts). The only key to lower the premium is to maintain a low MOD. A few suggestions to do so are:

High Safety Standards: It is common sense that a safe workplace both onsite and offsite will have less accidents. Regular safety evaluations, employee safety trainings etc will go a long way in lowering your small business employee health insurance premiums.

Register for State Sponsored Programs: States usually sponsor programs to improve safety in return for a deduction in the MOD rating. Like in Ohio, employers can get a deduction for participating in the Drug-Free Workplace Program. Through such programs you are subsidized for allowing inspections or focusing on certain injuries etc. Compliance to these agendas is difficult but the gain is substantial.

Further to reduce your small business employee health insurance premium it is essential that you classify your employees correctly. Citing the example above, a secretary in your business classified as a carpenter (because she works at a carpentry contractor) can cost thousands because a carpenter's rate is two or three times as higher than a secretary. In the same manner reviewing your payrolls regularly will be beneficial.

It pays to hire professionals to review/ prepare your NCCI classification paperwork, payrolls, evaluation of safety measures etc to ensure minimum errors in your small business employee health insurance plan.