Employer-Sponsored Health Insurance

Employer-sponsored health insurance refers to any health insurance paid for by a business on behalf of its employees. Typically, employer-sponsored health insurance is referred to as "employee health benefits". The majority of private health insurance in the United States is employer-sponsored health insurance.

Tax Free Employer-sponsored Health Insurance

Employer contributions to employer-sponsored health insurance, including health reimbursement arrangements (HRAs), are typically tax free. Employee contributions can be made on a pre-tax basis if the employer offers a Section 125 POP plan.

Employer-sponsored Health Insurance for Large Companies (50 or more employees)

The vast majority (~98% in 2008) of large employers in the U.S. offer employer-sponsored health insurance to their employees. With employer-sponsored health insurance, the typical large employers make an 85% contribution (on average) towards the cost of coverage for employees in addition to a 75% contribution (on average) to employees' dependents. 

Costs for employer-sponsored health insurance are rising rapidly.  Since 1999, premiums for employer-sponsored family coverage have increased 182%, while wages have risen 50% and inflation has risen 40%, according to a 2013 study by the Kaiser Family Foundation. Average premiums, including both the employer and employee portions, were $5,884 for single coverage and $16,351 for family coverage in 2013.

Effective January 1, 2015, the Patient Protection and Affordable Care Act (PPACA) will impose a $2,000 per employee tax penalty on employers with more than 100 employees that do not offer health insurance to full-time employees. Effective January 1, 2016, this provision applies to employers with more than 50 employees.

Many industry experts expect the new health reform to result in a decline of employer-sponsored health insurance in the large group market. 

Employer-sponsored Health Insurance for Small Companies (less than 50 employees)

The majority (~57% in 2008) of small employers in the U.S. do not offer employer-sponsored health insurance. The percentage of small companies that offer employer-sponsored health insurance has been declining steadily since 1999. The main reason small employers do not employer-sponsored health insurance is cost.

States typically regulate small group employer-sponsored health insurance premium rates by placing limits on the premium variation allowable between groups.  As a result, the insurance companies raise prices across all small group to recover their costs.

Health Insurance Brokers play a significant role in helping small employers purchase employer-sponsored health insurance.

One alternative to traditional group health insurance is the health reimbursement arrangement (HRA). With an HRA, businesses offer employees a monthly allowance of tax-free money. Employees then purchase health care products and services, including individual health insurance, and the business reimburses them up to their allowance amount.

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