All business owners do their best to take good care of their valuable workers, and to provide health insurance options that benefit their employees. But it’s equally important to consider cost and the financial health of the entire company when making decisions about employer contributions to employee healthcare coverage.
In most cases, employers who do offer health insurance will pay a percentage of the fee. So how much should this employer contribution amount to, and what does it mean for your business?
On average, employers offering healthcare benefits in 2020 paid 67% towards health insurance premiums for family coverage plans, and 82% for single coverage. This average rate of contribution supports a consistently healthy, happy, and high-performing workplace for everyone on the team.
Contributions from employers can vary greatly depending on the size of your company, the type of insurance you decide to offer, and the scope of the benefits packages available to your employees. Insurance plans purchased for employee coverage are often called “group health insurance plans” or “fully-insured plans” as they typically cover all of the eligible employees and their dependents and are a covered risk through premium payment to the insurance company
Fully-insured health plans are the most common way to organize employer-sponsored health coverage. This is how they work:
You choose an insurance plan for your business. Your business can work with insurance agents or brokers to determine the best plan for your employees, depending on the type of work they are engaged in.
You decide what amount you will contribute. You consider factors such as your tax savings (employer contributions to workers’ healthcare coverage are tax-deductible) and lower worker compensation premiums when deciding on the amount you will contribute.
Employees enroll in the health insurance plan, and pay the difference. Employee contributions often come directly out of a paycheck, which allows them to pay for their healthcare plans with pre-tax dollars.
Your company pays a premium to your chosen insurance carrier. Premium rates are set annually, and depend on the number of employees enrolled in the plan every month. This monthly premium will only change if the number of enrolled workers changes.
The insurance carrier covers your employees’ healthcare claims based on the benefits defined in your company policy. Enrolled employees and their dependents are responsible for paying the deductible and any co-payments for health services they receive under the plan.
Workplace productivity gets a boost. 60% of employers reported in a Metlife study that offering healthcare coverage to their employees led to a significant increase in productivity. The CDC also says that employees who are able to engage in regular preventative care, like routine physicals, are likely to accomplish more at work.
Are Employers Required To Offer Health Insurance?
There is no law requiring employers to offer their employees health care benefits. However, the Affordable Care Act (ACA), which was passed in 2010, states that businesses employing more than fifty people must either provide affordable health insurance or pay a large fine to the IRS. The fine amounted to an annual $3,860 per employee in 2020, so while it is at the discretion of the employer whether or not they choose to offer health insurance, most do.
In addition to the ACA requirements, most employers are motivated to provide health care coverage for their employees because it demonstrates an interest in their wellbeing and possibly productivity. According to a Glassdoor survey, employees consider health insurance to be the most important benefit a business can offer. Prioritizing the needs of employees leads to a successful, productive, and happy workplace, so many employers consider their health insurance offerings essential costs.
In order to comply with the ACA guidelines, larger employers must meet the minimum standards of coverage and affordability for the employee and their dependents (the ACA does not include spouses as dependents). Small businesses, on the other hand, are not included in the ACA’s health insurance mandate, and are therefore immune to the financial penalties. Less than half of businesses with only 3 to 9 employees offer health care benefits, whereas nearly all employers with 1,000 or more workers do.
Some small businesses still elect to offer health insurance coverage as a voluntary benefit, however. An Urban Institute study done in 2016 found that 83.1% of all workers were offered health insurance through their place of work. The high cost of insurance premiums might seem prohibitive if you own a smaller business, but the benefits of offering health care coverage to your employees can be a worthwhile investment in spite of the high cost.
The cost of providing group health insurance to your employees can depend on some of these factors:
Which insurance carrier your purchase your policy from
The location of your business
The type of plan you choose (PPO or HMO)
The network of available providers
Features like deductibles, co-payments, or out-of-pocket maximums
The type of work your business engages in (this can affect the demographic of your employees as well as incurring higher or lower healthcare costs)
And finally, the amount you decide to contribute
While some of these things are outside of your control, your choice of insurance carrier and which plan to offer your employees can have a big impact on your insurance overhead. Additionally, your rate of contribution will play a role in how much your company is paying each month for employee insurance. The most important thing is to combine all these factors and calculate a contribution amount that allows you to meet the needs of your employees and fits within your budget.
Offering competitive healthcare contribution rates can be a powerful factor in recruiting potential employees who are making decisions about the future of their careers. It is also a key factor in retaining top talent. Coverage and employer contributions can vary between companies depending on the size of the business, the number of employees, and the type of plans that they offer, and your business can gain an edge by offering high quality health insurance plans that will attract and retain talented, healthy, and productive workers. Providing affordable, comprehensive health care plans is beneficial for you, your employees, and your entire business as a whole.