Employer health insurance is confusing for many individuals, so you are not alone. Especially if you are just getting started offering employer sponsored health insurance or are offering employee benefits for the first time. Throw in words like premium, deductible, maximum out of pocket and copays and really fall further into that whirlwind of confusion. We're going to help you make sense of your options for employer health insurance today.
I am glad you asked!
Briefly, it is a healthcare plan that employers offer their employees and dependents. It's also referred to as employer-sponsored health coverage, employee health insurance, group plans, or insurance through work.
With employer health insurance, the insurance policy is purchased through the company instead of an individual purchasing the policy. Group plans also have set annual enrollment periods and more restrictions for new employees. Employers might set a waiting period before allowing their employees to qualify for their health insurance benefits.
Employees then receive financial help for a plan that offers more affordable healthcare, and treatment of chronic disease.
The cost of employer health insurance depends on where a company is located and what type of plan they choose for their employees.
Employer health insurance is one of the highest costs for an organization, and it continues to trend upward.
To try to minimize costs, businesses look at several indicators:
According to KFF, on average, workers covered by an employer health insurance plan contribute 17% of the premium for single coverage and 28% of the premium for family coverage. Covered workers in small firms on average contribute a higher percentage of the premium for family coverage than covered workers in large firms (24% vs. 37%).
Most insurance companies require at least 75% of their full-time employees to take part in their health plan.
We will start with the benefits of employer health insurance first.
With employer health insurance, or group insurance, there are certainly some advantages. The most beneficial is that employers split the cost of employees' premium with them, lessening the financial burden on individuals. Second, employees do not have to make as many decisions, since the employer will take care of that for them.
Employers do the research, pick the insurance carrier, and select the insurance plans that they will be able to choose from. The coverage benefits and limits are set by the employer, not individually.
Last, the premium contributions from the employer are not federally taxed, and employees' contributions are tax free, lowering taxable income.
This is where things get interesting. There are definitely some downsides.
One size fits all: One of the disadvantages of employer health insurance is less choices. The insurance company or carrier is selected by the employer, and employees get to pick from the plans that they offer. Employees do not get to choose out of all the choices to find the best coverage for their families.
Insurance tied to employment: Should an employee's job change, they would have limited coverage which can be difficult to deal with (aka COBRA). Many employees find this unaffordable.
Premium Tax Credits and Employer Health Insurance: Another disadvantage of employer health insurance is that it makes employees ineligible for government subsidies otherwise known as tax credits. Although they might qualify for them due to income level, they are not able to use them with group insurance. An employee's contribution to their premium each month and the dollars spent before they hit their deductible can be unaffordable compared to subsidized health insurance.
Rising costs: It is becoming more difficult for employers to offer group insurance due to several issues. Rising costs in healthcare, employers needing to cut costs not to mention the pricey treatments and medications. The cost that employers can cover is becoming less and less, causing the premium of employees to become out of budget or manageable for most individuals and families.
We're glad you asked! There are alternative to employer health insurance that might be a good fit for your company.
Many employers are beginning to offer HRA (Health Reimbursement Arrangements) programs for their employees. This choice is becoming more popular as it helps businesses save money but also offers the employees more flexibility and options that they will not get with Group insurance.
There are two types of HRAs: ICHRA (Individual coverage health reimbursement arrangement) and QSHERA (Qualified small health employer reimbursement arrangement.
ICHRAs and QSHERAs can save the employer a large amount of money but still help the employee get the health care they need. The reimbursements are also non-taxed which is another solid benefit.
Both are reimbursement arrangements in which employers can reimburse their employees for all or part of their individual health insurance premiums. In addition, employers can also set their HRAs up to reimburse for medical expenses (copays, deductibles, medications).
HRAs help solve many of the issues that arise with Group plans or Employer health insurance. The first being the freedom to pick what insurance company you get to choose from and the plan options.
Low deductibles, different coverage on various stages of life, I.e., maternity or specialty care. HRAs give individuals the power to choose. Remember, no two employees need the same type of coverage.
If an employer utilizes an HRA, each employee will get a set amount of allowance that they will be reimbursed monthly. Some employees are reimbursed for not only their medical premium, but also their vision and dental.
Instead of group insurance, which is deducted from your check monthly, you pay your premium monthly and then are reimbursed. HRA’s allow the individual to own their health insurance policy rather than their employer owning it.
QSHERA is for employers with under 50 employees in comparison to ICHRA which can have any number of employees.
Are ICHRAs and QSHERAs different? Absolutely. Those of you that are used to group insurance will be unsure about this new arrangement, but in the end, you will come to realize this can be a great option too.
Why?
HRAs provide personalization and choice for employees and cost control and risk de-management for employers.
Our team of experts is here to help walk you through your options for employer health insurance, rather that goes the more traditional route or the HRA route.
Here are a few helpful resources →