If you are a business owner, you need to weigh the importance of taking care of your employees against the cost of health insurance. Finding the cheapest employer health insurance that meets the needs of your staff is a critical first step. 

How common is it to provide an employer-sponsored plan? 

Employer-sponsored coverage is health insurance offered through your job. Also known as employer-provided health insurance, this may include coverage for current workers, as well as retirees. Typically, your employer may offer a choice of group health plans to eligible workers and cover part of the premium cost. Around 153 million Americans rely on employer-sponsored health insurance, according to the Kaiser Family Foundation.

According to a Kaiser Family Foundation (KFF) survey, 38% of covered workers at small firms are enrolled in a plan where the employer pays the entire premium for single coverage. This is the case for only 6% of covered workers at large firms.

Given that only about half of small businesses offer employer-provided health insurance, companies that do offer this popular employee benefit have a competitive advantage. Offering health insurance may be one way to stand out from other employers while contributing to a company’s recruiting strategy and employee benefits package.

Average employer-sponsored plan costs

According to research published by the Kaiser Family Foundation, annual premiums for employer-sponsored family health coverage in 2023 reached $8,435 for single coverage and $23,968 for family coverage. The average deductible among covered workers in a plan with a general annual deductible is $1,735 for single coverage. Workers at smaller firms, on average, contribute nearly $2,000 more toward the cost of family coverage than workers at larger firms. They also face general annual deductibles that are $2,000 higher on average.

Types of Employer Health Insurance Plans

Employer-sponsored health insurance plans come in several types, each with its own features and cost structures:

1. Preferred Provider Organization (PPO): PPO plans offer flexibility in choosing healthcare providers. You can see both in-network and out-of-network doctors without a referral. In-network care is less expensive, with fixed copayments or coinsurance. Out-of-network care often costs more. PPO plans are known for their flexibility but may have higher premiums.
2. Health Maintenance Organization (HMO): HMO plans require you to choose a primary care physician (PCP) and generally need referrals to see specialists. They have lower premiums and out-of-pocket costs compared to PPOs. However, you typically have a limited network of doctors and hospitals.
3. High Deductible Health Plan (HDHP): HDHPs come with higher deductibles and lower premiums. They are often paired with Health Savings Accounts (HSAs), which allow you to save money tax-free for medical expenses. While monthly premiums are lower, you’ll need to pay more out-of-pocket before the plan starts covering costs. Preventive care is usually fully covered.
4. Exclusive Provider Organization (EPO): EPO plans combine features of both HMOs and PPOs. They have a network of preferred providers, but you don’t need a primary care physician or referrals for specialists. Out-of-network care is usually not covered unless it’s an emergency.
5. Point of Service (POS): POS plans are similar to HMOs but allow you to see out-of-network specialists without a referral in some cases. They have a primary care physician requirement and a network of preferred providers.
6. Individual Coverage HRAs (ICHRA): A group health plan based on a pre-determined monthly employer contribution that employees may use towards the purchase of individual health insurance coverage.

The impact on costs varies depending on the plan type. PPOs offer flexibility but often come with higher premiums and out-of-network costs. HMOs and EPOs have lower premiums but may restrict you to in-network providers. HDHPs can save you money on premiums, especially when coupled with an HSA, but you’ll have higher out-of-pocket expenses until you reach your deductible. When choosing an employer-sponsored health insurance plan, consider your budget, healthcare needs, and preferred level of flexibility.

Factors Affecting Employer Health Insurance Costs

Average employer-provided health insurance costs have increased modestly in recent periods. The KFF 2023 survey found that this year saw a faster increase in average single and family premiums compared to the previous year. Single premiums rose by 2% this year, while family premiums increased by 7%. Similarly, last year’s single and family premiums saw a more modest increase of 1% each. Over the past five years, there has been a noticeable rise in the average premium for family coverage, increasing by 22%. This is in contrast to a 27% increase in workers’ wages and a 21% rise in inflation during the same period.

Several factors influence the costs of employer-sponsored health insurance, and they can lead to variations in costs for different employees:

1. Plan Selection: Employers typically offer a range of health insurance plans, from more comprehensive plans with low deductibles to high-deductible plans. The choice of plan significantly impacts costs. Employees who opt for plans with lower deductibles and broader coverage will generally pay higher premiums, while those selecting high-deductible plans pay lower premiums but must cover more out-of-pocket costs.
2. Location: The cost of healthcare can vary significantly by location. Urban areas tend to have higher medical costs, including doctor visits, hospital stays, and prescription drugs. Consequently, employees in urban areas may face higher premiums compared to their rural counterparts.
3. Company Size: Larger companies often have more bargaining power with insurance providers, allowing them to negotiate better rates and offer lower premiums to their employees. Smaller businesses may have fewer options and face higher premiums.
4. Employee Contribution: Employers and employees usually share the cost of premiums. Some companies cover a larger portion of the premium, while others shift more of the cost to employees. The level of employer contribution influences how much employees pay.
5. Age: Health insurance premiums tend to increase with age. Older employees generally pay more for coverage than younger ones.
6. Family Size: Employees with larger families might opt for family coverage, which can be more expensive than individual or employee-plus-spouse coverage.
7. Health Status: In some cases, employees’ health status may impact costs. Employers might offer wellness programs or incentives to encourage healthier behaviors, potentially reducing costs for employees who participate.
8. Cost-Sharing Mechanisms: Health insurance plans may include features like copayments, coinsurance, and deductibles. The specific cost-sharing mechanisms and their amounts can impact how much employees pay when receiving healthcare services.
9. Network Choices: Plans with broader networks of doctors and hospitals tend to have higher premiums. If employees prefer the flexibility of choosing their healthcare providers, they may select plans with larger networks, but these come with higher costs.
10. Prescription Drug Coverage: Some plans provide more extensive prescription drug coverage than others. Employees requiring specific medications may opt for plans that cover their prescription drugs, even if they have higher premiums.
11. Additional Benefits: Employers may offer extra benefits like dental, vision, or mental health coverage. These additional benefits can add to the overall cost of health insurance plans.

Ultimately, the combination of these factors can lead to variations in costs for different employees within the same company, depending on their individual circumstances, preferences, and healthcare needs.

Employer and employee contributions to monthly premiums

As a small business with less than 50 full-time equivalent employees, you are not required to offer group health insurance. If your company does decide to offer health coverage to your employees, then you are typically required to pay for at least 50 percent of employee premiums as a small employer. Keep in mind that your business can also decide to contribute a larger amount to your workers’ premiums.

The Employer Health Benefits 2023 Summary of Findings noted that the level of employer contributions to worker premiums tends to vary:

• 30 percent of covered employees had their employer pay the entire premium for individual coverage at small firms, while 6 percent of employers paid the entire premium amount for family plans.
• 32% of covered workers at small firms are in a plan where they must contribute more than half of the premium for family coverage, compared to 8% of covered workers at large firms.
• The average amounts contributed by covered workers in 2023 are $1,401 for single coverage and $6,575 for family coverage, similar to the amounts last year.

The importance of affordable employer-sponsored health insurance

Understanding the average cost of employer-sponsored health insurance can help business owners explore coverage options for themselves, their families, and their employees.

According to healthcare.org, the most important factors for small employers when choosing a group health plan are to carefully consider things like the cost to you and your employees, and the health services covered.

Finding employer-sponsored health insurance

With eHealth, business owners can easily shop for affordable employer-sponsored health insurance coverage. By quickly entering in your business’ zip code and number of employees on our employer health insurance page, you can immediately gain access to free, no-obligation group health insurance quotes.

Our marketplace offers the largest selection of health plans on the Web, which allows you to quickly compare different group plans offered by different insurance companies side by side.

Find out more about how eHealth can help you find the optimal health insurance for your business by visiting eHealth.com or speaking with one of our licensed health insurance agents.