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How much do employers pay for health insurance?

Written by: Elizabeth Walker
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Published on March 29, 2022.

Whether you’re exploring cost-effective health plans for your organization, researching health reimbursement arrangements (HRAs) for the first time, or looking into health stipends, a common question business owners have is, “how much does health insurance cost per employee?”

Rising healthcare costs can make organizations second-guess offering an employer-sponsored health plan. However, the cost of losing employees by not offering health benefits can surpass the cost of supporting your employees’ well-being, so offering a comprehensive health benefit is vital.

This article will break down the average employer health insurance cost per employee and the average cost of employer-sponsored health insurance. We’ll also explain how you can use an HRA or health stipend to control your budget.

Use the table contents below to jump to a specific section:

How much does group health insurance cost?

When an employer provides health insurance coverage to employees, the business purchases a plan (or plans) to cover all eligible employees and dependents. This type of coverage is commonly called a “group health insurance plan” or a “fully-insured plan.”

According to the Kaiser Family Foundation (KFF), in 2021, the average cost of employee health insurance premiums for family coverage increased by 4% from the previous year to $22,221. The average annual premiums for an individual’s plan also increased 4% to $7,739.

Many employers also changed their offerings on telemedicine, mental health coverage, and wellness programs following the COVID-19 pandemic. Although these numbers vary by company and provider, the average insurance costs continue to rise year over year.

How much do employers pay for health insurance?

If you’re an employer offering health benefits for the first time, allocating a part of your budget to pay for a health benefit is fundamental to retaining talent and attracting new employees.

KFF found that in 2021, the average health insurance cost for employers was $16,253 annually, or 73% of the premium, to cover a family and $6,440, or 83% of the premium for an individual. These premiums for families and individuals have increased 22% over the last five years and 47% during the previous 10 years.

Average Annual Worker and Employer Premium Contributions for Single and Family Coverage, by Plan Type, 2021

Learn more about what percentage of health insurance is paid by employers

How much does group health insurance cost for employees?

From the insurance plan your company chooses to your employees’ health conditions, many factors affect how much employees pay for health insurance.

Again looking at KFF’s report, in 2021, group health insurance participation cost employees $5,969 annually, roughly 27% of the premium, for family coverage and $1,299, about 17%, for an individual. Employee costs are typically taken through a payroll deduction.

Premium costs with a group health insurance plan typically increase every year. In fact, employers expect the average total cost of healthcare to increase by 4.7% in 2022. To minimize or reduce fluctuation in premium amounts, and to control the cost of benefits from year to year, you can change contribution strategies or plan features.

How you can control group health insurance costs

Although healthcare is considered one of the most expensive benefits you can offer at your organization, it’s undoubtedly an important investment in your company’s future.

By better understanding what factors will affect your health benefits costs, you can gain greater control over your budget and set your employees up for success.

The cost of providing health insurance to employees depends on the following factors:

  • The insurance carrier
  • The type of plan you choose, such as a preferred provider organization (PPO) or health maintenance organization (HMO)
  • The network of providers in a plan
  • Plan features such as deductibles, copays, out-of-pocket maximums
  • Your location
  • Your contribution amount (you can move more of the cost burden onto your employees)
  • The demographics of your employees or your plan rates for the “risk pool” at your company
    • For example, older workforces tend to have higher healthcare costs, which might increase your rates

Why health reimbursement arrangements (HRAs) are an effective way to control costs

Instead of purchasing a group health insurance policy and paying premiums set by the insurance company, an alternative strategy is to use an HRA to reimburse employees for premiums and out-of-pocket medical expenses.

Options such as a qualified small employer HRA (QSEHRA) or individual coverage HRA (ICHRA) are simple and inexpensive solutions that work for any small business. Employers can choose whether they want to reimburse for health insurance premium costs or premiums and out-of-pocket expenses.

The Affordable Care Act (ACA) created the QSEHRA specifically for small businesses with fewer than 50 full-time equivalent employees (FTEs).

There is also the option of providing a group coverage HRA (GCHRA), also known as an integrated HRA, to help bridge the gap between offering a traditional group plan while minimizing premium costs.

With an HRA:

  • The employer sets an annual or monthly allowance they will agree to reimburse employees for medical costs
  • Employees purchase their own health insurance plan on a private exchange or the health insurance marketplace
  • Employees are able to choose a plan from a provider of their choice that has the features they need most
  • As employees pay premiums and associated medical costs, the employer reimburses the employee for eligible expenses up to their allowance balance

For example, a young employee might opt for a high deductible health plan (HDHP) to eliminate or minimize out-of-pocket spending on premiums. In contrast, an older employee might choose a plan with a lower deductible and out-of-pocket maximum.

The cost savings from providing an HRA are significant. The employer controls the allowance they decide to offer, making the actual cost of the reimbursement amount affordable and customizable.

What’s more, the money goes further, as all reimbursements are free of payroll taxes for both the employer and employee and free of income taxes for the employee, as long as they purchase a health plan that qualifies as minimum essential coverage (MEC).

Take our HRA quiz to help you determine which HRA is best for your company

How health stipends can be a cost-effective option

While HRAs are an excellent option for organizations looking to lower their health benefit costs, they aren’t always the best choice for some employers.

If you’re looking to add an HRA as your first health benefit or cancel your group health insurance policy, you’ll need to consider premium tax credits eligibility. Some of your employees might become eligible for premium tax credits without an employer-sponsored group health insurance plan.

With a QSEHRA, your employees must reduce their advance premium tax credit (APTC) by the amount of their QSEHRA allowance. Meanwhile, employees who are offered an ICHRA must choose whether to waive their APTC and take the ICHRA or keep their tax credits and opt-out of the health benefit. This is based on affordability.

These employees can’t take advantage of their employer-sponsored health benefits and receive premium tax credits simultaneously.

Health stipends can help to alleviate these concerns. Employee health stipends are like an HRA, except they’re taxable, more flexible, and have fewer regulations. This allows stipends to be a flexible option for all types of organizations.

If your employees receive tax credits, they can keep those credits and take advantage of your employee health stipend.

What’s more, health stipends are also a great option for organizations with employees in other countries.

The one downside to health stipends compared to an HRA is that stipends are taxable and must be reported on your employees’ W-2s. If your organization doesn’t have employees who receive premium tax credits, an HRA may be an easier health benefit option.

Want to see how health stipends compare to HRAs? See our free comparison chart

Conclusion

Employees today expect employers to offer a health benefit, but many organizations find group health insurance a pricey investment. While there are a few ways to reduce employer health insurance costs, HRAs and health stipends give employers health benefit options that put them in control of their costs.

Employers sometimes prefer an HRA or a health stipend because they provide more flexibility for their budget, and their employees get to purchase their own insurance plan—one that meets their current life needs.

If you think an HRA or health employee stipend is right for your organization, schedule a call with a personalized benefits advisor at PeopleKeep to learn more.

This blog article was originally published on October 7, 2020. It was last updated on March 29, 2022.

Originally published on March 29, 2022. Last updated March 29, 2022.
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