Health insurance can help protect you and your dependents from high medical costs. Obtaining health insurance through an employer is often cheaper than purchasing health insurance independently from your job - this is because your employer will help cover some of your health coverage and medical expenses.
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What Employer-Sponsored Health Insurance Is
Employer-sponsored health insurance is a health policy plan that is chosen and bought by your employer. After selecting the policy, the health insurance plan will be offered to eligible employees and their dependents.
There are several advantages to utilizing employer-sponsored health insurance. For example, you and your employer will typically share the cost of your premium. Additionally, your employer will perform all of the work needed to choose a plan.
The premium contributions made by your employer are not subject to federal taxes, and your taxable income will be lower because your contributions are made pre-tax. See the table below for a deeper understanding of the differences between an individual plan and an employer-sponsored health insurance plan.
How Employer-Sponsored Health Insurance Works
|Factor||Individual Plan||Employer-Sponsored Plan|
|Who chooses the plan||You||Your employer|
|Coverage remains if you change jobs||Yes||Limited|
|Coverage of pre-existing conditions||Yes||Yes|
|Premiums can be made pre-tax||No||Yes|
|You can choose a plan that includes your preferred medical providers||Yes||Limited|
Why Employer-Sponsored Health Insurance is Cheaper than Individual Health Insurance
Typically, employer-sponsored health insurance is cheaper than individual health insurance because your employer will help you pay for your health coverage and other medical expenses. According to federal law, large employers must pay at least half of health insurance premiums, and businesses will usually exceed this percentage.
For example, in 2016 the average annual premium cost of an individual health insurance plan for a single person was $4,632. However, the average annual premium cost of an employer-sponsored health insurance plan for an individual was $6,435. Although this number may seem higher with employer-sponsored health insurance, this $6,435 is split between the employer and employee by 50% at the least. Thus, this employer-sponsored health insurance cost is lower.
Additionally, employer-sponsored health insurance plans have seen smaller increases in premiums than individual health plans. In fact, with employer-sponsored health insurance, premiums for individuals have only increased by 3% and about 5% for family plans. For individual coverage, the average premium with employer-sponsored health insurance was $1,644. On the other hand, the average premium for individual coverage with an individual health insurance plan was $5,000.
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Employer-Sponsored Health Insurance Frequently Asked Questions (FAQs)
Understanding employer-sponsored health insurance and whether or not you should go through your employer can be confusing. To better understand, check out some of these frequently asked questions regarding employer-sponsored health insurance.
Should I buy employer-sponsored health insurance?
By referring to the table above, you can see the key differences between employer-sponsored health insurance and individual insurance. Suppose you prefer to choose the insurance company, renew or change health insurance plans, not be tied to your job, and want to be eligible for a subsidy from the federal government to pay for your insurance. In that case, an individual health insurance plan may be best for you.
However, if you want to split the cost of premiums with your employer, and have your plan be chosen by your employer, then an employer-sponsored health insurance plan may be best.
What are some common employer-sponsored health insurance plans?
Some common employer-sponsored health insurance plans include small health group insurance, health reimbursement arrangements (HRAs), and salary bonuses. Small health group insurance is the most popular type of health plan offered. Organizations with anywhere between 2 full to 50 full-time employees are eligible to enroll in this plan. These plans cover all essential health benefits outlined by the Affordable Care Act.
HRAs are IRS-approved, employer-funded health benefits that can be used to reimburse employees for out-of-pocket medical expenses and one’s own health insurance premiums. An HRA allows small employers to manage their benefits costs via setting their own budget.
Salary bonuses are for very small employers who do not offer any sort of health benefit. Thus, they can give some extra money, or a raise or salary bonus, as a sort of strategy for certain employer-provided health benefits.
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Are there any exceptions to employer-sponsored health insurance being cheaper than individual health insurance?
There are some exceptions to employer-sponsored health insurance being cheaper than individual health insurance though. Some of these instances may include:
- If your employer only offers one health insurance plan, this limits your ability to choose a plan and its coverage. With individual health insurance, you can have the freedom to pick between a variety of plans and find the most cost-effective plan for you.
- If you qualify for Medicare or Medicaid. Employer-sponsored health insurance will always be more expensive than Medicare and Medicaid if you qualify for these plans.
- If your household income is less than 400% of the federal poverty limit, you will be able to receive subsidies from the government if you purchase a plan with the Affordable Care Act (ACA) exchange. These subsidies will come as premium tax credits, which will lower the cost of your health insurance plan in the ACA marketplace.
Why should an employer offer health insurance?
There are various benefits when it comes to offering health insurance to your employees. Offering health insurance to your employees can give your business a competitive edge when it comes to recruiting quality individuals and keeping them healthy. By offering health insurance, you will be able to ensure that your employees’ health and wellness are maintained, thus they will be able to continue to work well. Additionally, if you are a small business, you can be eligible for a tax credit by purchasing health insurance for your employees.
In general, employer-sponsored health insurance will be less expensive than finding an insurance plan outside of your wor; this is because employers will often split the overall cost of premiums with you, making the portion that you have to pay smaller. However, there may be times where there may be exceptions to this sentiment of employer-sponsored health insurance being cheaper.
If you are unable to afford health insurance or your employer does not offer employer-sponsored health insurance, Mira may be a great option for you. With Mira, you can access urgent care visits, lab testings, and up to 80% off on over 1000 prescriptions for a low cost of just $45 per month. Additionally, Mira has options that enable you to offer health insurance to your employees with us.
Madeline is a Senior at UCLA majoring in Human Biology & Society with a minor in Spanish. She's currently a Healthcare Research Analyst at Mira, writing content for the blog to help the public better understand certain medical issues, technologies, testings, and the importance of healthcare.