What is employer-sponsored health insurance?

By Holly Bengfort on January 23, 2026 at 10:25 AM

Employee benefits play a major role in hiring decisions. PeopleKeep by Remodel Health’s 2024 Employee Benefits Survey of more than 1,000 employers and employees found that 81% of employees consider an employer’s benefits package an important factor when deciding whether to accept a job.

Health insurance consistently ranks as the most valued benefit, supporting both employee health and financial security. However, coverage options and plan details can be confusing for employers and employees alike.

In this article, we'll go over the basics of employer-sponsored health insurance and explain what every beginner should know.

In this blog post, you'll learn the following:

How group health premiums are a shared responsibility between employers and employees.

Why applicable large employers (ALEs) have to offer health benefits.

Why HRAs are cost-effective alternatives to traditional group health plans.

Employer-sponsored health insurance

Employer-sponsored health insurance is a type of health coverage that employers provide to their employees as part of their benefits package. A large chunk of the American population relies on this employee benefit. KFF's 2025 Employer Health Benefits Survey¹found that employer-sponsored insurance covers 154 million people younger than age 65.

In most cases, employer-sponsored coverage refers to health plans that employers provide and often help pay for. They give employees access to medical care, preventive services, and prescription drug coverage. However, employers can also sponsor alternative types of health coverage and health benefits.

Many employer-sponsored health plans allow employees to add their spouses and dependent children to their coverage, often at an additional cost.

Types of employer-sponsored coverage

Employers have many choices for health insurance coverage for their employees. Let's review some of the most popular options.

Group health insurance

A group health insurance plan is a type of health insurance that an organization offers to a group of individuals. This is typically used to cover employees of a company. Individuals don't buy group health plans for themselves because a single person doesn't qualify as a group. Employers often offer group coverage as part of their employee benefits package.

There are two types of group coverage: fully-insured group plans and self-insured group plans. Fully-insured group plans are a type of plan that employers buy for their employees.

KFF's 2025 Employer Health Benefits Survey shows that the average annual premiums for employer-sponsored health plans were:

$9,325 for individual coverage
$26,993 for family coverage

Employer health insurance premiums are often a shared responsibility. Employees pay their portion through a payroll deduction.

The premium contribution from covered workers was:

16% for single coverage
26% for family coverage

Employers covered the remaining balance.

Some popular network options for group health plans are:

Preferred provider organization (PPO) plans
Health maintenance organization (HMO) plans
Point of service (POS) plans
Exclusive provider organization (EPO) plans

Employers can also choose a group policy with a low deductible or instead offer a high deductible health plan (HDHP), which is also a health savings account (HSA)-qualified plan.

Employers can also offer a self-funded group plan. With this type of plan, employers directly cover employee claims costs. This can save some organizations money compared to paying premiums for a group plan, but it isn’t without risk. Organizations must ensure they have enough funds to cover unexpected employee medical claims. They also have to consider any third-party administration solutions or level-funded plans.

Health reimbursement arrangements

Alternative health benefits, like health reimbursement arrangements (HRAs), are also available. An increasing number of employers are turning to HRAs due to the rising cost of group plans. An HRA is an employer-funded health benefit. Employers can use HRAs to reimburse employees for more than 200 eligible medical expenses, including monthly premiums for their individual health insurance coverage with a stand-alone HRA. The IRS defines eligible expenses in Publication 502.

Some other examples of HRA-eligible expenses include:

Dental insurance premiums
Vision insurance premiums
COBRA premiums
Doctor visits
Prescription drugs
Over-the-counter medication

An HRA lets employers manage their healthcare costs by setting their own budget. Employers set aside a monthly allowance of tax-free money for their employees to use on healthcare purchases. Once employees submit proof of their eligible expenses, the employer reimburses them up to their allowance amount.

The most popular types of stand-alone HRAs are:

The individual coverage HRA (ICHRA): An ICHRA is for organizations of all sizes. However, employees need their own individual health insurance plans to participate in the ICHRA. This includes Medicare Parts A and B or Part C. Employers can set up different classes to vary employee eligibility and allowances, such as full-time and part-time workers. Allowances can also differ by employee age and family status.
The qualified small employer HRA (QSEHRA): The QSEHRA is for small employers with fewer than 50 full-time equivalent employees (FTEs). Employees need minimum essential coverage (MEC) to participate in this benefit.

There are also two types of HRAs that work alongside a group health plan: the group coverage HRA (GCHRA) and the excepted benefit HRA (EBHRA). A GCHRA allows employers to reimburse employees for out-of-pocket medical expenses, such as costs before they reach their deductible. An EBHRA only covers excepted benefits, like dental and vision expenses.

Health stipends

Employers sometimes offer a stipend as a health benefit. A health stipend is a fixed amount of money employers offer to employees to help pay for their medical costs. Unlike an HRA, there are no restrictions on what an employee can spend their stipend on. They can spend it however they choose. But, stipends count as taxable income since they're additional compensation for employees. They also don’t satisfy the ACA’s employer mandate for organizations with 50 or more FTEs.

Health savings account-qualified plans

Health savings accounts (HSAs) allow individuals to save money on a pre-tax basis for medical services and other eligible out-of-pocket expenses. Individuals can open HSAs, or employers can offer them. To contribute to an HSA, employees need a qualified high deductible health plan (HDHP). But no matter how the HSA is set up, it always belongs to the individual employee.

The money in an HSA carries over yearly. Both the employer and employee can make contributions to the HSA, as long as their total combined contributions don't exceed the annual limit. The IRS updates this limit each year.

Employers can offer an HSA-qualified HDHP alongside an HSA to help their employees save for future medical expenses.

What is open enrollment?

Open enrollment is when individuals can sign up for or make changes to their health insurance plans without facing penalties or restrictions. This keeps people from signing up for health coverage only when they get sick. During open enrollment, people can enroll in new plans, switch providers, or adjust their coverage options based on their health needs and financial situations.

Employers can generally offer² group coverage anytime during the year if they qualify. This means that employers don't have to wait until a set open enrollment period to offer coverage. But most employers will have a set period where employees can make changes to their existing coverage or enroll in the plan if they haven't already.

If you offer or plan to offer an HRA, you need to be aware of the annual Open Enrollment Period for individual plans. Since employees with an ICHRA or a QSEHRA can get reimbursed for individual health insurance policies, they'll shop for coverage during this time. Open Enrollment dates differ by state. It runs from November 1 to January 15 in most places. If someone enrolls by December 15 and pays their first month's premium, their coverage will begin on January 1 of the next year.

If an employer offers an HRA for the first time, it's considered a qualifying life event. This triggers a special enrollment period (SEP) that gives employees 60 days to enroll in individual coverage.

Do employers have to offer health benefits?

Some employers have to provide health insurance. The Affordable Care Act's (ACA) employer mandate requires applicable large employers (ALEs) with more than 50 FTEs to offer health benefits to their staff.

Under the ACA, ALEs must:

Offer health benefits that meet MEC and minimum value to at least 95% of full-time employees or face a penalty.
Offer affordable health benefits or face a penalty.

Employer-provided health insurance isn't a requirement for small businesses with fewer than 50 FTEs. However, providing health benefits is a valuable investment for small employers.

The importance of employer-sponsored coverage

Even if they're not mandatory for all businesses, health benefits are the best thing employers can provide their workforce. According to our survey, 92% of employees rated health benefits as important. This makes them a necessity for any employee benefits package.

Here are some advantages to offering health benefits:

They help attract and retain top talent.
They help a business stand out against the competition.
They enhance job satisfaction and promote a healthier workforce, which can lead to lower absenteeism.
They can save employers more money during tax season.

Understanding coverage

It's important for individuals to carefully review their options if they're shopping for employer-sponsored health coverage or an individual plan during open enrollment. But if you're new to health insurance, learning the terms is one of the first tough parts. With a solid grasp of common healthcare terms, your employees can enroll in your group plan or shop for coverage with confidence.

Some important health insurance terms for them to know include:

Premium
Deductible
Copayment
Coinsurance
Out-of-pocket maximum
Pre-existing condition
Medicare

Conclusion

Employer-sponsored health coverage helps employees get the care they need and can lower their medical costs. It can also improve employee recruitment, retention, and satisfaction. There are several types of coverage to choose from, from group plans to HRAs. An HRA is often more beneficial for employers and employees since it offers flexibility, personalization, and tax advantages.

Break free from traditional health benefits by offering an ICHRA or a QSEHRA through PeopleKeep by Remodel Health. We take care of the most time-consuming tasks, like reviewing employee reimbursement requests. Your employees can shop for a qualifying health plan directly from their account, making the process seamless and hassle-free. Talk to an HRA specialist today to learn more.

This article was originally published on October 30, 2024. It was last updated on January 22, 2026.