Group health insurance is one of the most essential perks that businesses can offer their employees. In addition to providing team members with important healthcare benefits, having a comprehensive plan in place also helps to attract and retain exceptional talent.
However, many employers are left wondering—what percent of health insurance is paid by employers? This is a fair question since it directly affects both the company’s financial situation and employee’s out-of-pocket costs. Especially when operating a small business, it’s important to be hyper-aware of your budgetary restrictions.
To give you a better idea of what your future plan could look like, we’ll be exploring employer contributions, how they’re calculated, and the factors influencing cost. Now, let’s jump in!
Understanding Employer Contributions
When discussing what percent of health insurance is covered by employers, it’s critical to first understand the idea of employer contributions. In a traditional group health insurance plan, the employer and employee share the expense of premiums. The employer pays a portion, and then each employee covers the remainder of their plan’s cost. This shared-cost system is intended to keep healthcare inexpensive for both parties.
Contributions that employers make are generally only applied to the premium for an employee’s coverage. Depending on the plan type, employees may be required to contribute more for additional dependent coverage, such as spouses and children. Oftentimes, employers cover more of the premium than employees to make the benefit more appealing and affordable. With that said, each plan is different and costs can vary greatly.
Typical Employer Contributions
So in most cases, what percent of health insurance is paid by employers? According to a study by the U.S. Bureau of Labor Statistics, on average “Employers paid 67 percent of premiums for family medical care coverage in March 2022. Workers participating in these plans paid the remaining 33 percent.” The study goes on to explain that, “For single coverage plans, employers paid 78 percent of medical premiums, and employees paid 22 percent.”
Keep in mind that these are simply averages, and in other studies percentages may be different. Nonetheless, almost all the data available indicates that on average employers contribute:
- For Individual Coverage: Roughly between 70% to 80% of health insurance premiums.
- For Family Coverage: Roughly between 50% to 70% of health insurance premiums.
Lastly, it’s important to remember that companies looking to provide competitive benefits may contribute higher premium percentages. On the other hand, companies on strict budgets may offer plans with higher employee contributions.
Factors Affecting Employer Contributions
While industry studies provide a general idea of what percent of health insurance is paid by employers, there are a number of factors that make this number vary. These factors include:
- Business Size: Larger organizations often have more budget flexibility, allowing them to contribute a higher percentage of health insurance premiums. In contrast, small enterprises may need to find a balance between quality benefits and affordable costs.
- Industry: Certain industries, like technology or finance, may make larger premium contributions in order to attract highly trained personnel. On the flip side, industries that have more financial restraints may make smaller contributions.
- Plan Type: The type of plan you select—whether an HMO, PPO, or High-Deductible Health Plan (HDHP)—can also affect employer contributions. For example, HDHPs frequently have lower premiums, resulting in lower contribution percentages for employers, but greater out-of-pocket expenditures for employees.
Benefits of Offering Higher Employer Contributions
When considering what percent of health insurance is paid by employers, it’s important to remember that business owners who contribute higher amounts to premium costs, can reap a variety of benefits:
- Attracting and Retaining Top Talent: Offering larger contributions to health insurance premiums is an effective way to draw in high-performing workers. In today’s competitive employment market, a comprehensive benefits package with health insurance is frequently on the top of prospect’s lists of wants.
- Employee Satisfaction: When employees believe their employer is invested in their health and well-being, job satisfaction and retention rates rise. Making larger contributions helps reduce turnover by creating a healthy work environment.
- Tax Benefits: Another benefit is that employers can get tax deductions on the contributions made towards employee health premiums. This helps to reduce the overall tax burden for the business. There are also different tax breaks that you could qualify for depending on the size and nature of your business. Probably the most common one is the Small Business Health Care Tax Credit, which is worth up to 50% of the costs of employee premiums for qualifying businesses.
Legal Requirements for Employer Contributions
Understanding what percent of health insurance is paid by employers also involves recognizing the legal requirements. According to the Affordable Care Act (ACA), businesses with 50 or more full-time employees must provide health insurance and contribute at least 60% of their employees’ premiums. Failure to do so could result in a penalty.
Small firms with less than 50 employees are not required by law to provide health insurance. However, some states may have local regulations requiring employer contributions. For the majority of states though, small business owners may choose whether or not they will voluntarily provide health insurance. Keep in mind that doing so is always a good idea in order to remain competitive in the employment marketplace.
Balancing Costs and Business Priorities
For small businesses, offering group health insurance can be costly. With that said, there are some methods you can use to offer top-tier benefits, for an affordable price:
- Explore Multiple Different Plan Types: It’s worth exploring a variety of plan types to find what works best for your employees and your budget. It’s important to note that every different plan type has its own set of pros and cons. If you’re unsure about which one is right for your team, we suggest that you read our detailed overview of the most common group health insurance plans.
- Consider Wellness Programs: Some insurance companies provide discounts and incentives to businesses who offer employee wellness programs. Additionally, these programs help to naturally lower your premiums over time by encouraging healthy habits and reducing illness and injury.
- Talk to an Insurance Expert: Insurance is complex and has a lot of moving pieces. Especially when trying to handle it all alone, the task can be quite overwhelming. To this point, it’s often worthwhile to consult with an insurance specialist. They’ll be able to help you find the best plan for your company and workforce.
Final Thoughts
Understanding the percentage of health insurance paid by employers is critical for business owners considering offering group health insurance. Whether you decide to contribute the average amount, a bit more, or less, your decision will have a lasting impact on your company and its employees. So remember, when weighing your options be sure to take into account criteria like your business size, industry, and plan type. By doing so, you can strike the perfect mix of benefits and cost.
If you’re a business owner looking to take the next step in protecting your team, Group-Health-Quotes (GHQ) is the place for you! Our website offers an extensive library of resources aimed at helping business owners save money and run a successful operation. If you’re ready to explore your options, simply enter your ZIP code or give us a call at 888-571-0291. The process is quick and our comparison tools ensure that you’ll find the right fit for your business no matter your situation. Don’t wait any longer, get insured today!
