Health insurance is a very important topic for those looking for a job. Employers will have an easier time attracting the top employees if they offer employee health insurance. Employer health insurance cost sharing is an important factor when considering how much a policy will cost.

Furthermore, the company needs to have a clear understanding of its overhead expenses. Even though it can be beneficial for employees if they offer health insurance, employers will have to absorb some of the cost. That is why it is critical to take a closer look at critical factors involving employer-employee cost-sharing health insurance, including small business health insurance.

Learn more about how employer-employee cost-sharing health insurance works in this guide.

How does cost sharing work for health insurance?

What is cost sharing, and how does it work for health insurance? Employee health insurance cost sharing is likely to be on your small business preparation checklist, so let’s look at the basics.

In most cases, companies do not cover 100 percent of the cost of employee insurance. However, employees may get a significant discount on their health insurance if they are able to purchase it through their employer; however, it is unlikely to be free. For example, an employee might have to pay $15 out of their paycheck every two weeks to cover the cost of their medical insurance, dental insurance, and vision insurance. The exact amount of money each party will have to pay will depend on the plan selected. Because costs are divided between the employee and the employer, it is referred to as cost sharing.

Here’s how the process for establishing employer health insurance cost sharing works:

1. The employer will negotiate with the health insurance company to see how much they have to pay to provide their employees with health insurance.
2. The employer will decide how much of each plan they want to cover.
3. Any remaining expenses will be covered by the employee.

Depending on the plan selected, employees may have to pay more money out-of-pocket. Furthermore, the amount employees have to pay will vary depending on whether they have ICHRA health insurance or group health insurance.

The ACA employer mandate

The ACA employer mandate classifies employers according to how many full-time or full-time equivalent (FTE) employees they have.

When tabulating FTEs, the proportion of a 40-hour work week that a part-time employee works determines how they count toward an FTE employee. For example, an employee who works 10 hours per week would count as 0.25 FTEs. Seasonal employees are included, but seasonal workers who are employed for less than four months and 120 hours are not.

Per the ACA employer mandate:

• Businesses with over 50 FTEs are required to provide group health coverage and pay at least 60 percent of the premiums in their cost sharing solution. Additionally, the cost sharing may not make employees contribute over 9.86 percent of their household income toward premiums.
• Businesses with fewer than 50 FTEs are not required to provide group health coverage, but they can choose to do so and may qualify for a tax credit to help with cost sharing (see below).

There is no legal requirement to provide employees with access to group health coverage if your business is defined as a small business. Many businesses that are often classified as small, however, may fall into the ACA’s classification of 50-plus FTEs and need to offer coverage. In both cases, businesses are welcome to provide more coverage or pay a higher portion of employees’ premiums than the law requires.

What are the benefits of employer health insurance?

If you decide to offer employer health insurance, there are several benefits employees will enjoy. Some of the top benefits of going with employer health insurance include:

• There is a high likelihood that the employer is going to split the cost of the premiums. The employer may even pick up the overwhelming majority of the cost of the health insurance plan, allowing employees to save money.
• If an employer contributes some money to the cost of health insurance, employees do not have to pay tax on that money. It could reduce the amount of money they owe the government in taxes.
• Employees don’t have to worry about cutting through the jargon to pick out their own health insurance plan. The employer will do most of the hard work for them, figuring out which plans they want to offer.
• If employees want to contribute more money to their medical expenses, they might be able to do so through the employer. The benefit of doing so is that employees can then deduct that money from their taxable income, helping them save money on their taxes.

Even though it is true that employees may have to pay some money out of pocket in an employer-employee cost-sharing health insurance arrangement, there are still a lot of benefits they get to enjoy.

How is employee health insurance cost sharing calculated?

So how is cost sharing calculated for employer-employee cost-sharing health insurance? Expenses are divided between the employee and employer. 

For example, the employer might cover 80 percent of the health insurance premium, and the employee will be responsible for the other 20 percent. Then, employees will have to do cost sharing with their health insurance company as well. When they receive medical care, they might have to pay some money out of pocket in the form of deductibles and copays. At that point, the insurance company should pick up most—if not all—of the other expenses.

If you are wondering how to save on health insurance, regardless of whether you are a business owner or employee, you can start by comparing plans with eHealth.

Small businesses offer lower cost sharing assistance than large ones

The Henry J. Kaiser Family Foundation published a 2019 Employer Health Benefits Survey that showed many employers offer more cost sharing assistance than they’re required to. Small businesses, however, paid a significantly smaller portion of their employees’ premiums than large companies did for family plans.

Among cost sharing payments for single coverage, the survey found that, on average, small firms paid 84 percent of their employees’ single coverage premiums at a per-employee cost of $6,184 annually. Large firms paid an average of 81 percent of their employees’ single coverage premiums at a per-employee cost of $5,845 annually.

When insuring employees and their families, large employers paid an average of 74 percent of family coverage premiums at a per-employee cost of $15,446 per year. Small employers only covered 60 percent of family coverage premiums on average, trimming their per-employee cost for this coverage to $12,432 annually. That’s a cost sharing reduction of $3,014, which would have a significant impact on both employers’ and employees’ bottom lines.

*For the purposes of the survey, small employers were defined as businesses which have 3 to 199 employees. This differs from the ACA’s cutoff, but it still shows that smaller employers are trying to mitigate their health insurance costs through cost sharing more than their larger counterparts.

Small employers have several group health coverage options

Small employers looking for affordable cost sharing solutions that comply with any ACA requirements they are under and that are appreciated by employees have a few options available to them.

First, the most obvious option is to provide a traditional group health insurance plan that meets or exceeds ACA requirements. Employers who have fewer than 25 FTEs and purchase a qualifying plan through a SHOP-registered broker like eHealth may qualify for the Small Business Health Care Tax Credit. The tax credit can help greatly with cost sharing. Keep in mind that there are many restrictions to this tax credit, and you can only get it a few years in a row, so do not limit yourself to qualified SHOP plans just because of the tax credit.

Second, you can combine a small business health insurance plan and a group coverage HRA as an effective cost sharing solution. These are usually paired with high-deductible group plans, which typically cost both employers and employees less in premiums, and they offer employees reimbursement for qualifying medical expenses.

Third, the qualified small employer health reimbursement arrangement (QSEHRA) became available in 2016. Under this arrangement, employees purchase their own health insurance plans and receive reimbursement (subject to a maximum) in the form of pre-tax income from their small employer.

Finally, the Department of Labor expanded association health plan (AHP) availability for small businesses in 2018. These plans let small businesses that share a commonality (e.g. industry, profession, region, etc.) to form an association and purchase group health insurance together (or they might be able to self-insure). Be sure you understand concerns about AHPs before joining one instead of purchasing a small business health insurance plan for yourself and your employees.

How to Find a Small Business Health Insurance Cost Sharing Solution

For help finding a health insurance solution that suits your small business, talk with one of our specialists. We’re a registered broker offering SHOP plans, and our licensed representatives are well-versed in the cost sharing options available for small business health insurance plans. Visit eHealth.com to learn more about small business health coverage for your company and employees.

This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.