What is employer-sponsored health insurance?

In today's competitive labor market, employee benefits are more important than ever. According to our 2024 Employee Benefits Survey, 81% of employees consider an employer’s benefits package as an important factor in whether they accept a job.

Health insurance consistently ranks as the top benefit employers can offer. It supports employee health and also plays a key role in their financial security. Yet, many people are often confused by the terms, coverage options, and details of health plans.

Whether you're an employer sifting through benefit options or an employee who's curious about how insurance plans work, gaining a foundational understanding of employer-sponsored health insurance is essential.

In this article, we'll go over what every beginner should know about employer-sponsored health coverage.

In this blog post, you'll learn the following:

• The average cost of health insurance and what employers usually cover.
• The different types of health coverage employers can offer.
• Why an HRA is a cost-effective employee health benefit worth considering.

Employer-sponsored health insurance

Employer-sponsored health insurance is a type of health coverage that employers provide to their employees as part of their benefits package. According to KFF¹, 60% of Americans had employer-sponsored health insurance as of March 2023.

In most cases, employer-sponsored health insurance refers to health plans that employers provide and often help pay for. They give employees access to medical care, preventive services, and prescription drug coverage.

Many employer-sponsored plans allow employees to add their spouses and dependent children to their health coverage, often at an additional cost.

Types of employer-sponsored coverage

Employers have many choices for health insurance coverage for their employees. Below, we'll review some of the most popular options in more detail.

Group health insurance

A group health insurance plan is a type of health insurance an organization offers to a group of individuals. This is typically used to cover employees of a company. Individuals don't buy group coverage for themselves because a single person doesn't qualify as a group. Employers often offer group coverage as part of their employee benefits package.

KFF's 2024 Employer Health Benefits Survey² shows that the average annual premiums for employer-sponsored health insurance in 2024 were:

• $8,951 for individual coverage
• $25,572 for family coverage

Employers and employees shared this cost. Covered workers contributed 16% of the premium for single coverage and 25% of the premium for family coverage. Employers footed the bill for the rest.

Some popular network options for group health insurance polices are:

• Preferred provider organization (PPO) plans
• Health maintenance organization (HMO) plans
• Point of service (POS) plans
• Exclusive provider organization (EPO) plans

Employers can also choose a group policy with a low deductible or instead offer a high deductible health plan (HDHP), which is also a health savings account (HSA)-qualified plan.

Health reimbursement arrangements

Alternative health benefits, like health reimbursement arrangements (HRAs), are also available. An increasing number of employers are turning to HRAs due to the rising cost of group plans. An HRA is an employer-funded health benefit. Employers can use HRAs to reimburse employees for their eligible out-of-pocket medical expenses. With a stand-alone HRA, employers can also cover their employees’ individual health insurance premiums.

Some other examples of HRA-eligible expenses include:

• Monthly premiums for individual dental or vision plans
• Doctor visits
• Prescription drugs
• Over-the-counter medication

An HRA lets employers manage their healthcare costs by setting their own budget. Employers set aside a monthly allowance of tax-free money for their employees to use on healthcare purchases. Once employees submit proof of their eligible expenses, the employer reimburses them up to their allowance amount.

Three of the most popular types of HRAs are:

• The qualified small employer HRA (QSEHRA): The QSEHRA for small employers with fewer than 50 full-time equivalent employees (FTEs). Employees need minimum essential coverage (MEC) to participate in this benefit. You can’t offer a QSEHRA and a group plan at the same time.
• The individual coverage HRA (ICHRA): An ICHRA is for organizations of all sizes. However, employees need their own individual insurance plans to participate in the ICHRA. Employers can set up different classes to vary employee eligibility and allowances, such as full-time and part-time workers. An ICHRA can help organizations satisfy ACA requirements.
• The group coverage HRA (GCHRA): The GCHRA, also known as an integrated HRA, works alongside a group health plan. It helps employees with out-of-pocket costs the group plan doesn't cover or fully pay for. This includes copays, coinsurance, and deductibles. Employers can’t reimburse the cost of premiums with a GCHRA.

Health stipends

Employers sometimes offer a stipend as a health benefit. A health stipend is a fixed amount of money employers offer to employees to help pay for their medical costs. Unlike an HRA, there are no restrictions on what an employee can spend their stipend on. They can spend it however they choose. But, stipends count as taxable income since they're additional compensation for employees.

Health savings account-qualified plans

Health savings accounts (HSAs) allow individuals to save money on a pre-tax basis for medical services and other eligible out-of-pocket expenses. Individuals can open HSAs, or employers can offer them. To contribute to an HSA, employees need a qualified high deductible health plan (HDHP). But no matter how the HSA is set up, it always belongs to the individual employee.

The money in an HSA carries over yearly. Both the employer and employee can make contributions to the HSA, as long as their total combined contributions don't exceed the annual limit. The IRS updates this limit each year.

Employers can offer an HSA-qualified HDHP alongside an HSA to help their employees save for future medical expenses.

What is open enrollment?

Open enrollment for health insurance is a specific period when individuals can sign up for or make changes to their health insurance plans without facing penalties or restrictions. This keeps people from signing up for health coverage only when they get sick. During open enrollment, people can enroll in new plans, switch providers, or adjust their coverage options based on their health needs and financial situations.

Employers can enroll in group coverage anytime during the year³ if they qualify. This means that you don’t have to wait until open enrollment to get coverage. But, most employers will have a set open enrollment period where employees can make changes to their existing coverage or enroll in a plan if they haven't already.

If you offer or plan to offer an HRA, you need to be aware of the annual Open Enrollment Period for individual plans. Since employees with a QSEHRA or ICHRA can get reimbursed for individual health insurance policies, they’ll shop for coverage during this time. Open Enrollment dates differ by state. Typically, it runs from November 1 to January 15 in most places. If someone enrolls by December 15 and pays their first month's premium, their coverage will begin on January 1 of the next year.

If an employer offers a new health benefit, such as an HRA or group health plan, it's considered a qualifying life event. This triggers a special enrollment period (SEP) that gives employees 60 days to enroll in coverage.

Do employers have to offer health benefits?

Some employers have to provide health insurance. The Affordable Care Act (ACA) requires applicable large employers (ALEs) with more than 50 FTEs to offer health benefits to their staff.

Under the ACA, ALEs must:

• Offer health benefits that meet MEC and minimum value to at least 95% of full-time employees or face a penalty.
• Offer affordable health benefits or face a penalty.

Employer-provided health insurance isn't a requirement for small businesses with fewer than 50 FTEs. However, providing health benefits is a valuable investment for small employers.

The importance of employer-sponsored coverage

Even if they're not mandatory for all businesses, health benefits are the best thing employers can provide their workforce. According to our survey, 92% of employees rated health benefits as important. This makes them a necessity for any employee benefits package.

Here are some advantages to offering health benefits:

• They help attract and retain top talent.
• They help a business stand out against the competition.
• They enhance job satisfaction and promote a healthier workforce, which can lead to lower absenteeism.
• They can save employers more money during tax season.

Understanding coverage

It's important for individuals to carefully review their options if they’re shopping for employer-sponsored health coverage or an individual plan during open enrollment. But if you're new to health insurance, learning the terms is one of the first tough parts. With a solid grasp of common healthcare terms, your employees can enroll in your group plan or shop for coverage with confidence.

Some important health insurance terms for them to know include:

• Premium
• Deductible
• Copayment
• Coinsurance
• Out-of-pocket maximum
• Pre-existing condition
• Medicare

Conclusion

Employer-sponsored health coverage helps employees get the care they need and can lower their medical costs. It can also improve employee recruitment, retention, and satisfaction. There are several types of coverage to choose from, from group plans to HRAs. An HRA is often more beneficial for employers and employees since it offers flexibility, personalization, and tax advantages.

Break free from traditional health benefits by offering a QSEHRA or ICHRA through PeopleKeep. We take care of the most time-consuming tasks, like reviewing employee reimbursement requests. Your employees can shop for a qualifying health plan directly from their account, making the process seamless and hassle-free. Talk to an HRA specialist today to learn more.

1. KFF Employer-Sponsored Health Insurance 101
2. KFF 2024 Employer Health Benefits Survey
3. eHealth