Guide to employer health insurance

Why you can trust Insure.com

Quality Verified

At Insure.com, we are committed to providing the timely, accurate and expert information consumers need to make smart insurance decisions. All our content is written and reviewed by industry professionals and insurance experts. Our team carefully vets our rate data to ensure we only provide reliable and up-to-date insurance pricing. We follow the highest editorial standards. Our content is based solely on objective research and data gathering. We maintain strict editorial independence to ensure unbiased coverage of the insurance industry.

Insights:

Employer-sponsored health insurance is a way to get comprehensive coverage that’s usually more affordable than individual health insurance plans.

When you start a new job, part of the dreaded first day is the mountain of paperwork to complete. Amongst the HR minutiae, there are often the inevitable health insurance forms that can be both confusing and overwhelming at the same time.

Most companies offer health coverage. FIfty-five percent of small firms and 99% of large firms offer health benefits to workers. It is typically easy to sign up, and rates are generally affordable.

But is it worth it? We investigate.

What is employer health insurance?

Employer health insurance refers to a group health insurance plan chosen and maintained by a company for its employees.

Although optional for smaller companies, the Affordable Care Act mandates that larger companies must offer health insurance to employees — or they may face penalties. This applies to employers with a minimum of 50 full-time equivalent employees. Employers are responsible for paying at least 50% of their employee’s annual premiums.

There are incentives for small companies, too. When there are fewer than 25 full-time equivalent employees, companies could receive a tax credit when they offer employee health insurance.

Key Takeaways

Larger companies must offer health insurance to employees or face penalties.
Smaller companies also often provide health coverage for employees and are eligible for tax credits when they offer job-based insurance
If you’re eligible, you can enroll in health coverage when you’re first hired and can make changes to health insurance during the open enrollment period.
Businesses also allow you to make changes to your job-based plan if you have qualifying life events that lead to a special enrollment period.
If you decline an employer-sponsored plan, you may not be eligible for tax credits if you buy a health insurance marketplace plan.

How does employer health insurance work?

With group health insurance, your employer decides on the insurance companies and options. That means the company chooses what kind of insurance to offer, such as health, dental, and life insurance.

Businesses contract with an insurance company to provide group policies for its employees, including full-time workers and may include part-time employees, too.

“A company, with the assistance of a broker like me, sends in a census of its employees (names, dates of birth, gender for some coverages, home zip code),” says Christopher “Chase” Carey, principal and broker of Georgia’s Carey Benefits, who was former vice president of underwriting for Aetna. “From this, the insurance company underwriters determine the correct premium level.”

Employees can make changes to their employer-sponsored health insurance during an open enrollment period. Your employer chooses when open enrollment occurs, but it typically lasts about a month during the fall or winter. During this time, you can either sign up for new coverage or change your existing policy.

You can also get or change coverage during a special enrollment period. The special enrollment period applies when you have a qualifying life event, such as marriage, the birth of a child, or a spouse’s death. You could also apply for new or alternate coverage if your hours are reduced at work.

During special enrollment, you can make changes to your health insurance. These periods are usually 30 or 60 days from the time of the qualifying event. For instance, if you want to change insurance after getting married, the clock starts ticking the day of your wedding.

Your employer can provide further details regarding what insurance plans are available.

Types of health insurance plans

There are several different types of health insurance plans available today. Some are more common than others, with Kaiser Family Foundation (KFF) reporting the prevalence of each in today’s group life insurance plans.

Plan Name	Description	Best when	% of workers with this type of plan
Preferred provider organization (PPOs)	Low out-of-pocket costs High premiums	You want the flexibility to get care out-of-network	47%
High-deductible health plan with a savings option (HDHP)	Low premiums High deductibles Tax-free health savings account	You want less money taken from your paycheck	31%
Health maintenance organization (HMO)	Low premiums Typically low deductibles Referral required for specialists	You don’t mind a restricted network	13%
Point of service (POS)	PPO and HMO hybrid Network flexibility	You want the option of both a PPO or HMO	8%

Source: Kaiser Family Foundation

Your employer may choose from any of these, although it’s most likely that PPOs will be at least one choice. A 2020 Insure survey of 1,000 people found that 48% of respondents said their company only offers one health insurance plan. Forty-six percent said their job provides two or three options and only 7% provide different types.

Why your health insurance network matters

Your job-based insurance plan includes a network of providers. This is a group of health care providers that your insurance company has partnered with to provide care.

Some plans, such as a PPO, will let you go out of network to seek care, although it typically comes at a greater cost.

Other plans like an HMO restrict the number of providers that you can see, potentially creating issues if you have a preferred provider that is not on the list.

How much does an employer pay for health insurance?

Employer health insurance is often more affordable than individual health insurance, thanks to the group discounts that accompany multiple policies.

KFF reports that employers paid an average of 83% of single premiums in 2020. The average employee spends an average insurance premium of $1,243 per year for single coverage with employers picking up an average of more than $6,200 annually.

Job-based plans are hugely affordable, compared to paying more than $5,000 annually for the average individual premium. Family plans could cost more than double or more.

Here are the average costs for employer group health insurance, according to Kaiser Family Foundation.

Plan type	Employee premium	Employer contribution	Total costs
Single Premiums
PPO	$1,335	$6,546	$7,800
HDHP	$1,061	$5,829	$6,890
HMO	$1,212	$6,071	$7,284
POS	$1,419	$6,066	$7,485
All Single Coverage Average	$1,243	$6,227	$7,470
Family Coverage
PPO	$6,017	$16,231	$22,248
HDHP	$4,852	$15,506	$20,359
HMO	$5,289	$15,520	$20,809
POS	$6,210	$14,262	$20,472
All Family Coverage Average	$5,588	$15,754	$21,342

Source: Kaiser Family Foundation

Still, premiums continue to rise each year, with an average of 3% increases for single plans and around 5% for family coverage. Deductibles and out-of-pocket costs continue to increase, as well.

In addition to standard health insurance coverage, employers may also offer other benefits and perks that can increase the value of your healthcare.

How to ask an employer for health insurance

Many employers offer details and paperwork regarding health insurance when you first start a job.

However, Carey recommends broaching the subject even earlier.

“During the interview process, ask if the employer offers health insurance and find the details of what the benefits and cost are,” he encourages. “If an employee works at a company that does not offer it, speak to HR indicating how important those benefits are.”

OnPay, a payroll and HR software, conducted an extensive 2020 study regarding employee benefits preferences. Elliott Brown, OnPay’s Director of Marketing, explains, “According to the employees we surveyed, health insurance is the most important benefit by a long shot (PTO and retirement plans are a distant second and third). However, only about half of small businesses offer health insurance. Given this disparity, it’s not hard to see why employees with health benefits are more engaged and less likely to look for a new job.”

A 2020 Insure survey also found that health coverage plays a major influence in employee recruitment and retention. Seventy percent rated a company’s health insurance as important when deciding on a job or staying with a company.

Necole Gibbs, licensed broker and insurance professional for TNG Insurance Agency, says employees of small companies may not have success in getting their employer to add health insurance.

“If an individual works for a small business with less than 50 employees, it would be like pulling teeth to try and get their employer to participate in some type of health benefits program. However, there are ways that an individual can negotiate their salary, commissions, and or bonuses (if they work in a sales environment) to request health insurance.”

If your employer doesn’t offer health insurance, some effective ways to initiate that conversation and discuss other alternatives include:

Health incentives

Some employers offer other perks and rewards when you maintain a healthy lifestyle or participate in healthcare incentives.

Family credits

If your employer doesn’t offer health insurance coverage for your family, a credit may be available to help you find coverage elsewhere.

Savings accounts

If your employer doesn’t offer health insurance, it might be willing to add a high-deductible health plan, which puts more costs on plan members when they need care. When there is an HDHP, employers may also offer a health savings account (HSA). A health savings account allows you to put money aside tax-free for future health costs. Even better, you keep these funds if you leave your job.

Can you drop your employer-sponsored health insurance at any time?

Unlike individual health insurance, there are specific rules governing the cancellation of job-based health insurance. It can only be canceled within the company’s open enrollment period or both you and your employer may incur tax penalties in accordance with Section 125 of IRS code.

There is one exception. You may cancel your participation in an employer group health plan if you have a qualifying life event. This could be a change in hours or loss of a job, a new baby, marriage, or divorce.

You can also cancel coverage if you lose your job, but then you have to worry about alternate coverage. That is where COBRA insurance could help.

COBRA Insurance

When you leave your job, whether voluntarily or not, there can be a sudden interruption to your health insurance coverage. However, losing your job is considered a qualifying life event, which means that you can either buy a new health insurance policy or take advantage of COBRA insurance to buy some more time for shopping and comparing providers.

“An employer can cancel their group insurance at any time. If they do, the employees are not eligible for COBRA or state continuation coverage, but it is a qualifying event for an employee to purchase an individual health plan on their own,” Carey says.

COBRA refers to the Consolidated Omnibus Budget Reconciliation Act. It is a federal law allowing terminated employers to temporarily extend their employer health insurance coverage. However, because you no longer work for the company, your employer is no longer obligated to contribute to your premium costs, leaving many people to pay for full coverage.

What are other health insurance options if your employer doesn’t offer coverage?

Recent changes in healthcare have made it more difficult for some employers to offer health insurance for employees.

The coronavirus pandemic and rising healthcare costs have made many cash-strapped businesses scale back employee benefits to save costs. Health insurance costs are always increasing every year, as new technologies and medicines become available at a higher price tag than before.

Many businesses today are passing the responsibility of healthcare to their employees. Many employees today have been left to fend for themselves, with companies either paying half or none of group health insurance costs.

If your company doesn’t offer employer health insurance, you still have options as an employee.

Individual health insurance

Some employer health insurance plans don’t provide coverage for spouses or children, leading individuals to seek additional coverage elsewhere. You may also need supplemental coverage or an entirely different policy if you have specific needs for your care.

Individual health insurance puts you in the driver’s seat for your health insurance policy, giving you control over all the little details that an employer would otherwise decide for you. With your own policy, you have more choices for things like coverage, deductibles, and network, so you can choose the medical providers that are best for you.

Instead of being stuck with your employer’s single policy, you can shop health insurance companies to find the best pricing and coverage for your family’s needs.

However, individual health insurance is typically much more expensive than employer health insurance, which includes group discounts in its pricing.

When comparing employer health insurance versus individual health plans, there are some things to consider.

Points	Employer insurance plans	Individual insurance plans
Coverage for pre-existing conditions	Yes	Yes
Pre-tax premiums	Yes	No
Eligible for premium tax credits	No	Yes
Can keep same coverage with same costs if you change jobs	No	Yes
Cost sharing with employer	Yes	No

Government subsidies

For those with a lower household income, the cost of health insurance may be more than the budget allows. In this case, a government subsidy could help.

Those with a household income of less than 400% of the federal poverty limit may be eligible for federal government subsidies. This applies to health insurance policies purchased under the Affordable Care Act (ACA) exchange and includes premium tax credits, which reduce the overall cost of your health insurance policy.

Medicaid and Medicare

If you’re eligible for either Medicare or Medicaid, these plans could be a more affordable alternative to individual or even employer health plans.

To help determine which coverage is best for you, explore our health insurance quiz.

Can you get insurance through the marketplace if your employer offers coverage?

You can purchase a plan from the health insurance marketplace, but this will forfeit any employer contribution you may receive with a group plan. You may also not be able to receive any premium tax credits or other incentives because an employer-provided policy is available.

If you cancel coverage and don’t replace it, you could face a penalty, in addition to the health risks.

Frequently Asked Questions

Can you change your health insurance company at any time?

An annual enrollment period allows you to either buy a new policy or change existing coverage. The exception is the special enrollment period, which is available after a qualifying life event, such as job loss, marriage, or the birth of a child.

How does it work when an employer provides health insurance coverage?

When an employer offers health insurance coverage, the benefits administrator for your company provides details regarding the company plan. You can then review coverage options to see if the plan is right for you.

Can an employer offer an individual health insurance plan?

An employer cannot offer individual health insurance. Group health insurance is the type of health insurance that is offered by a company to its employees.

Lena Borrelli

Contributing Researcher

Lena Borrelli is a freelance writer from sunny Tampa Bay who has worked with such leading industry titans as Gronk Fitness, Morgan Stanley, Wells Fargo and Simon Corporation. Her work has most recently been published on sites like TIME, Microsoft News, Bankrate, Investopedia, Fiscal Tiger, The Simple Dollar, ADT and Home Advisor.