How Much Do Employers Pay For Health Insurance

The financial burden of employee healthcare grows heavier and equally more important each year. 

To achieve more favorable rates, the first step is to acquire a deep understanding of the costs themselves. 

This brings us to the question: 

How much do employers really pay for employee health insurance? 

Not only will we divulge the answer in this article, we'll also explore the key factors affecting healthcare costs and how to manage them effectively. 

Let's get started. 

What Is Employer-Sponsored Health Insurance?

Employer-sponsored insurance is a type of health insurance where the company covers or shares the cost of premiums with employees. 

In most cases, this type of insurance is employment-linked. However, more flexible healthcare plans ensure portability for employees when they move on to a new job — particularly if they were enrolled in an individual healthcare plan. 

Average Cost Of Group Health Insurance Plans

According to a report by the Kaiser Family Foundation (KFF), the average annual cost of employee health insurance is $8,951 for single coverage and $25,572 for family coverage (across all plan types).

Digging deeper, the average annual costs of insurance premiums for different plans are:

• Health Maintenance Organization (HMO) — $8,745 for single coverage, $25,203 for family
• Preferred Provider Organization (PPO) — $9,383 for single coverage, $26,678 for family
• Point of Service (POS) — $8,911 for single coverage, $24,340 for family
• High Deductible Health Plan (HDHP) — $8,275 for single coverage, $24,196 for family

It's worth noting that these cost benchmarks underline a 24% increase from 2019. And despite this, employee contributions only increased by 5% — leaving employers to cover the difference. 

How Much Do Employers Have To Contribute?

In most cases, employers had to cover 83% of the cost of health insurance premiums. 

That means that, for the annual rate of $8,951, employers had to cover about $7,584 per employee with single coverage. 

Factors Affecting The Overall Cost Of Health Plans

Naturally, knowing the overall cost of health insurance won't lead to actionable solutions. 

What you need is a full breakdown of the factors that add to this cost, including:

• Plan Coverage — One of the biggest factors that affect the cost of employee healthcare is the type of coverage. The more comprehensive the plan, the more money it takes out of the employer's pockets each month. 
• Plan Features — Annual deductibles, copayments, and out-of-pocket maximums are health plan features designed to give employers some control over healthcare costs. Investing in healthcare solutions without these features in mind can quickly blow up the price of insurance products out of proportion. 
• Insurance Provider — Although different insurance carriers offer similarly structured healthcare plans, their products come with distinct features in terms of coverage and pricing. Established insurers may provide better-quality benefits overall, but these add a premium to the price of their products. 
• Company Size — Larger companies not only have a greater risk pool, they also have more negotiating power that can bring the price of healthcare down. At the same time, smaller companies have access to more plans like Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), which enables tighter cost control as well as greater flexibility for businesses with fewer than 50 employees. 
• Workforce Demographics — Having a younger and more energetic workforce allows companies to negotiate for better rates from third-party insurers. In contrast, having older employees often leads to more expensive health insurance plans. 
• Your Business Location — Business location is directly tied to factors like market concentration, local health spending, and market competitiveness. All these can have a profound impact on your healthcare costs. 

Should You Offer Health Insurance as an Employee Benefit? 

The short answer is yes — health insurance is crucial for businesses, especially given the competitive job market. 

You're also legally obligated to offer health benefits if you have over 50 full-time employees, according to the Affordable Care Act (ACA). 

Regardless of business size, there are four great reasons why you need to offer health insurance as an employee benefit: 

Tax Advantages

First and foremost, remember that employer contributions count as business expenses that will lower your taxable income. 

Employer-funded health insurance also:

• Reduces payroll tax liability
• Qualifies small businesses for tax credits
• Protects against ACA penalties

With some plans like Individual Coverage HRA (ICHRA), employees also enjoy tax-free reimbursements for insurance premiums and eligible medical expenses — a win-win for businesses and their workforce. 

Bringing and Retaining Talent 

Speaking of win-win, keep in mind that some of your best employees could be one health incident away from heading out the door. 

Skilled and experienced professionals know the value they bring to the table. And, in order to secure their commitment, they need to see value returned in kind, not just through financial stability but also a competitive benefits package. 

Boost Overall Employee Performance

With all the talk about tax advantages and retention, it's easy to forget the very reason why companies need employee healthcare in the first place: promoting employee well-being. 

There's more than sufficient evidence to show that health insurance provides both financial protection and physical protection for your workers — and that these benefits directly affect their productivity. 

We're talking about fewer sick days, improved focus, and higher job performance scores. Well-planned health benefits packages also contribute to better presenteeism or engagement when it comes to accomplishing business objectives.

By understanding the reasons above, it's easier to justify the ever-burgeoning costs of health insurance, right? 

The good news is, there are plenty of options available right now that will help you control the costs of employee healthcare.  

How to Control Health Insurance Costs

A surefire way to gain back control of health insurance costs is to use an HRA.

Plans like ICHRA and QSEHRA, for example, enable employers to set maximum monthly allowances to cover insurance premiums and other medical services. 

In simple terms, QSEHRA is a type of HRA for companies with fewer than 50 full-time employees — plain, simple, and easy to manage. ICHRA, on the other hand, focuses on more flexibility by eliminating business size restrictions and allowing employers to set adjusted allowances for different employee groups. 

Furthermore, ICHRA allows employers to set their own list of reimbursable medical expenses as long as they fall within official IRS guidelines. 

Let's say your company's ICHRA allowance per person is $1,000. 

Employee A allocates $700 from this budget toward individual insurance premiums. They also spend an additional $400 for medical services, be it dental, eyecare, or prescription medication. 

Since they exceeded the specified $1,000 allowance, they need to pay the excess $100 out of pocket. 

This protects employers from overspending on employee healthcare. 

Once you set a monthly allowance per employee, it's virtually impossible to blow through your budget. 

Final Words: Jumping Into ICHRA with SimplyHRA

Want to take ICHRA out for a spin? 

You have two options: look for a third-party insurer that offers ICHRA or invest in a visual benefits management platform like SimplyHRA. 

It has everything you need to implement a successful ICHRA plan for your business. You can create different plans for each employee class, manage enrollments, track payouts, review analytics, and more. 

SimplyHRA also takes time-consuming paperwork and compliance-related tasks off your hands. 

All you need to do is get your employees on board, manage your budget, and leave the rest to us. 

Book a demo with SimplyHRA here.