One of the least understood systems in the United States is health insurance. With legislation changing seemingly every day, it’s hard to keep up with what is and isn’t reality. The vast majority of people in the U.S. use employer coverage. Today, employment-based coverage is how over half (55%) of the population gets their health insurance. With such a large quantity of people using employer coverage, why isn’t it better understood?
As we all know, insurance is complicated. Most people don’t know what exactly they’re paying for when they pay their monthly insurance premiums. Choosing through employers is easier than finding an individual plan, but that doesn’t mean it’s any more straightforward. In this article, we’ll uncover the percentage of health insurance that’s paid by employers so you can have a better understanding of how your coverage works.
How Do Employers and Employees Share Costs?
When an employer purchases a group plan for their company, they’re agreeing to cover a portion of the employees’ costs associated with their plans. That means the number you pay in premiums every month is greatly reduced because your employer is paying for a percentage of it. According to a 2014 study, employers pay an average of 69% of insurance premiums.
Insurance costs are re-negotiated every year between employers and insurance providers. That means it’s never the same for very long, but you can assume it’s somewhere in this ballpark. The employers are responsible for setting this percentage. Because of this, many employers offer to cover a larger percentage in order to attract and retain top talent. At the same time, other employers experiencing financial hardship might choose to lower their own costs to help offset their own troubles.
Under the Affordable Care Act, employers are required to cover at least 60% of costs under what’s known as the essential coverage requirements. This essential coverage requirement sets the bar for what insurance providers and employers are required to cover, though it doesn’t include things like supplemental plans.
Many employers also help cover the cost of supplemental plans, especially as a way to attract better employees. What’s a supplemental plan? Basic health insurance doesn’t cover any “extras” like dental and vision. Instead, many people choose to purchase their own independent dental plan, or employers will offer supplemental plans through their own provider. You can get a low cost dental plan on your own or by asking your employer to include one in their own coverage.
Alternative Cost-Sharing Strategies
Some businesses, as you might imagine, aren’t able to cover these costs. Larger employers have much more buying power when it comes to insurance, though this is quickly changing under recent legislative changes. Small businesses in particular struggle to handle insurance contributions with their tighter budgets, so many use alternative cost-sharing strategies.
What alternatives are available? One of the most well-known options is to provide a health arrangement (HRA). With an HRA, employers allow an allowance towards the employee’s insurance plans that they purchase individually. This gives smaller employers the chance to define their own contribution at a reasonable level.
Another option for cost-sharing is for small businesses to pair up with other small businesses either through a professional organization or just on their own. When they pair up and apply for group coverage, the cost is shared more effectively, allowing for more freedom and lower premiums.
It’s important to educate yourself about your own healthcare coverage. Even if you’re not a small business or large business yourself, understanding how your coverage works is an essential part of making a smart decision. Most employers tend to pay around 65 – 70% of coverage towards employees plans, while small businesses often find other ways to help employees afford insurance.
Hopefully, this guide opened your eyes to the realities of employer health insurance. Now, you’re prepared to make a better decision about your own healthcare either for your business or for yourself.