Employer-sponsored health insurance, also known as group plans, was once a standard perk of the workplace. However, a difficult economic environment and rising healthcare costs have resulted in half of all businesses failing to offer group plans.
With chronic health problems costing U.S. businesses over a trillion dollars in lost productivity every year, businesses of all sizes are impacted by employee well-being.
It’s vital to examine the benefits of employer-provided health insurance and why more businesses should consider implementing employer-based health insurance plans.
What is Employer-Sponsored Health Insurance?
Employer-Sponsored Health Insurance is a healthcare plan that employers provide for the company’s workforce and their dependents. The employer is responsible for choosing the plan and determining exactly what it covers. Employers and employees typically share the cost of health insurance premiums.
Employers and employees share the premiums. There are also major tax advantages to participating in employer health plans —employee contributions, for example, can be made pre-tax, reducing federal and state taxes on the employee end.
Are Employers Required to Offer Healthcare Coverage?
The Affordable Care Act made it mandatory for businesses with more than 50 full-time employees to offer health insurance plans to their workforce. Since 99% of all businesses in the U.S. are small businesses, the act essentially targeted those corporations that could afford this perk. These corporations are known as Applicable Large Employers (ALEs).
Small businesses with fewer than 50 full-time employees are not required to provide a healthcare plan. As a result, personal Health Savings Accounts (HSAs) have become popular. Contributed funds are not subject to federal taxes.
Because every U.S. adult was required to hold a basic level of healthcare insurance under the shared responsibility provision of the ACA, many small businesses elected to sponsor healthcare coverage anyway.
Those employers were incentivized through the tax credit for small employer health insurance premiums. However, when the penalty for not possessing basic coverage was removed in 2019, many employees were left without employer-sponsored health insurance.
Benefits of Employer-Sponsored Health Insurance
Even if a business has no mandatory requirement to implement employer-paid health insurance, there are benefits to doing so for both the employer and the employee.
Benefits For Employees
Affordable healthcare. Employees gain access to affordable healthcare that they may otherwise have been unable to access.
Treatment for chronic disease. Many plans offer access to mental health treatments and chiropractic services, which are often not available through the cheapest individual plans.
Improved morale. Studies have shown that employees with access to healthcare have higher morale and improved productivity.
No research required. With group plans, the employer takes care of choosing the plan and the provider. This saves employees time and effort in selecting the right plan for them.
Benefits For Employers
Attract better talent. Perks like employer-paid health insurance make your business more competitive. The best talent wants to work for employers that will take care of their well-being.
Tax-deductible premiums. Employer health insurance premiums are tax-deductible. This can reduce your tax bill by thousands of dollars every year.
A more productive workforce. With employee productivity impacted heavily by personal health and well-being, offering healthcare coverage could make your workforce more productive.
Lower insurance costs. The more employees who are enrolled in a healthcare plan, the more the risk is spread out. Health insurers offer lower insurance costs when more people are enrolled in a healthcare scheme.
Employer-Sponsored vs. Private Health Insurance
When asking, “How does employer health insurance work?” one of the downsides is that employer programs can be quite pricey. Although individual plans may seem cheaper, the fact is that due to the tax advantages of employer plans, they can work out to be cheaper.
Private health insurance vs. employer health insurance is often misunderstood. It’s important to consider both the similarities and differences when deciding on the right plan.
Similarities and Differences in Benefits
The main similarities are that employees receive a certain level of healthcare with both individual and employer-sponsored plans. Both types of plans will cover pre-existing conditions, for example.
A key difference comes in the flexibility of each plan. Individual plans offer far more flexibility when it comes to choosing preferred doctors and hospitals. Those decisions may be more limited with employer healthcare plans.
Another difference in the debate between health insurance through employer versus personal insurance is your eligibility. There is limited scope for maintaining employer-sponsored healthcare if an employee changes jobs, while individual plans can be carried to other workplaces.
Cost Differences
There are huge cost differences between the two. The average cost of an employer-sponsored plan is $6,435, whereas an individual plan averages $4,632 per year. With tax credits, individual plans could be as low as $1,272.
This does not tell the full story, however. Employer plans cost employees half as much because employers and employees share the premiums. Also, employees don’t have the opportunity to make tax-free contributions using an individual plan.
TO SUM UP
Plans may be pricier with employer-sponsored health insurance, but employees often gain access to far more perks than with an individual plan. Plus, with the tax advantages, employees can make contributions and reduce their overall taxable income for federal income tax purposes.To learn more about employee health benefits and find the best option for you, contact Eden Health to discuss your healthcare needs.
