If you’re in charge of benefits for your organization and are considering a new health insurance program, your organization's contribution strategy is an essential factor in that decision. When working the new program's cost into your benefits budget, you’ll need to know how much employees will pitch in for coverage and the percentage you will pay.
With employer-sponsored health insurance coverage, an organization must contribute a minimum percentage and have employees pay the remaining share, usually through a payroll deduction. So, what percent do employers typically pay in the United States?
This article will discuss employer-sponsored health insurance costs and what percentage employers typically pay. We’ll also explain how you can use a health reimbursement arrangement (HRA) or health stipend to control your budget.
Takeaways from this blog post:
- Before choosing a benefit, employers must consider what percent of health insurance premiums they will cover and what employees will contribute.
- Small employers may cover more of their employees' premiums than larger businesses.
- Employers can also offer alternative health benefit options, like health reimbursement arrangements (HRAs) and health stipends, to keep premium costs low for employees.
When a business provides health insurance coverage to employees, it typically purchases a plan (or plans) from a commercial insurer to cover all eligible employees and their dependents. Most people know these plans as traditional group health plans or “fully-insured plans.”
According to KFF’s health benefits report, in 2023, the average cost of employee health insurance premiums for family coverage was $23,968. The average premium for a self-only plan was $8,435 annually1.
Although these numbers can vary by company, healthcare provider, and location, employers will know their new annual rate when it’s time to renew their plan.
According to KFF, in 2023, employers covered 83% of their employees’ self-only insurance plans and 73% of employees’ family insurance plans on average. Let’s dive into these stats a little deeper.
|
Employer percentage |
Employer dollar amount |
Employee percentage |
Employee dollar amount |
|
|
Self-only premium of $8,435 annually |
83% |
$7,034 annually |
17% |
$1,401 annually |
|
Family premium of $23,968 annually |
73% |
$17,393 annually |
27% |
$6,575 annually |
While large employers typically contribute a significant amount to employees’ healthcare, in some cases, small employers cover even more.
According to KFF, employers cover the entire self-only premium for 30% of covered workers at small to midsize organizations of 3-199 employees, compared to only 6% of covered workers in large firms of 200+ employees. In contrast, 32% of covered workers in small firms must pay more than half of the premium for family coverage, compared to 8% of covered workers in large firms.
A possible reason for this is that because small businesses have fewer eligible workers, it may be easier for them to pay the entire premium amount for their employees—whether it be self-only or family coverage—than large businesses with significantly more employees.
While virtually all organizations with 1,000 or more workers offer their employees health coverage, that’s different for small employers. According to KFF, only 39% of businesses with three to nine workers offer coverage to their employees. This decreased from 49% in 2021, showing that more small employers are forgoing health insurance coverage.
Small employers generally have tighter budgets, but the rising cost of health insurance can make it even harder to offer a benefit.
The annual premium cost for family coverage has increased 22% over the last five years and 47% during the previous 10 years, significantly more than either workers’ wages or inflation. This steady increase in healthcare services and costs can make it difficult for employers to continue to offer a health benefit that will provide enough value.
From the type of plan you choose to your employees’ health conditions, many major factors affect how much your employees will pay for health insurance.
Looking again at KFF’s 2023 report, employee contributions toward a family plan were $6,575 annually—roughly 27% of the average premium— and $1,401—or about 17%—for a self-only plan.
The premium cost associated with a group health insurance plan typically increases every year. To minimize or reduce fluctuation in premium amounts and to control employer costs, you can adjust contribution strategies or health plan features annually.
Although healthcare can be one of the most expensive benefits you can offer at your organization, it’s undoubtedly an important investment in your company’s future.
By better understanding what factors will affect your employee health benefits costs, you can gain greater control over your budget and set your workers up for success.
The annual cost of providing health insurance to employees depends on the following key factors:
If you’re an employer struggling to meet minimum health insurance contribution requirements, alternative health benefit options can be helpful.
For example, instead of paying for employer-sponsored coverage from an insurance company, you can go with an HRA—an arrangement that allows employers to offer their employees a specific allowance of money that they can then use to pay for individual health insurance premiums and other qualified out-of-pocket expenses.
Because these arrangements allow employers to set their own contribution limit, organizations often find them more predictable and affordable than traditional health benefit options. Individual health insurance premiums are cheaper than small group premiums in many states and counties. You can see even greater cost savings by reimbursing these premiums through an HRA.
The following four simple steps outline how an HRA works:
Below, we’ll go over three great health benefit options for employers who choose not to provide traditional group health insurance to their employees.
A qualified small employer HRA (QSEHRA) is a health benefit for employers with fewer than 50 full-time equivalent employees (FTEs) who don’t want to offer group health insurance.
With a QSEHRA, employers reimburse employees tax-free for their medical expenses, including health insurance premiums up to a maximum contribution limit.
If you want more information on how a QSEHRA can help you, check out our latest QSEHRA annual report to see how a QSEHRA helped our customers this year.
The individual coverage HRA (ICHRA) is a health benefit for employers of all sizes. With an ICHRA, small organizations can reimburse employees tax-free for individual plan premiums and other out-of-pocket costs.
An ICHRA can be a stand-alone or separate benefit option alongside employer-sponsored insurance. However, the employer can’t offer the same group of employees the choice between a group health plan and the ICHRA. There are no firm size limits and no restrictions for allowance amounts.
An ICHRA can help you satisfy the Affordable Care Act’s employer mandate if you’re an organization with 50 or more FTEs as long as you offer an affordable allowance that meets minimum value.
While HRAs are an excellent option for organizations looking to lower their health benefit costs, they aren’t always the best choice for some employers. HRAs are formal health insurance benefits that can come with special considerations for employees, like whether or not they can use their HRA with any eligible premium tax credit.
However, health stipends can help alleviate these concerns. Employee health stipends are like an HRA, except they’re taxable, more flexible, and have fewer regulations. The stipend is the equivalent of simply grossing up wages because it’s a flat amount given to all employees that they can spend on whatever they choose.
If your employees receive a tax credit, they can keep those credits and take advantage of your employee health stipend. Furthermore, health stipends are also an excellent option for organizations with employees in other countries.
But, like a QSEHRA, stipends don’t satisfy the ACA’s employer mandate. If your organization has 50 or more FTEs, an ICHRA might be your best option.
When considering how much a health benefit will cost your organization, employers must consider what percent of health insurance premiums their organization will cover and what employees must pay. Many larger companies that offer traditional employer-sponsored health insurance cover most of their employees’ monthly premiums. But, small businesses may be less likely to cover a significant portion of expensive group plans.
These employers sometimes prefer an HRA or a health stipend because they provide more flexibility for their budget, and their employees can purchase their own insurance plan. If an HRA is right for your organization, PeopleKeep can help!
This article was originally published on August 12, 2020. It was last updated on February 2, 2024.