Employer-sponsored health insurance refers to any health insurance paid for by a business on behalf of its employees. Typically, employer-sponsored health insurance is referred to as "employee health benefits". The majority of private health insurance in the United States is employer-sponsored health insurance.
Tax Free Employer-sponsored Health Insurance
Employer contributions to employer-sponsored health insurance are typically tax free. Employee contributions can be made on a pre-tax basis if the employer offers a Section 125 POP plan.
Employer-sponsored Health Insurance for Large Companies (50 or more employees)
The vast majority (~98% in 2008) of large employers in the U.S. offer employer-sponsored health insurance to their employees. With employer-sponsored health insurance, the typical large employers make an 85% contribution (on average) towards the cost of coverage for employees in addition to a 75% contribution (on average) to employees' dependents.
Costs for employer-sponsored health insurance are rising rapidly. Since 2001, premiums for employer-sponsored family coverage have increased 78%, while wages have risen 19% and inflation has risen 17%, according to a 2007 study by the Kaiser Family Foundation. Average premiums, including both the employer and employee portions, were $4,704 for single coverage and $12,680 for family coverage in 2008.
Effective January 1, 2014, the Patient Protection and Affordable Care Act (PPACA) will impose a $2,000 per employee tax penalty on employers with more than 50 employees that do not offer health insurance to full-time employees. Many industry experts expect the new health reform to result in a decline of employer-sponsored health insurance in the large group market.
Employer-sponsored Health Insurance for Small Companies (less than 50 employees)
The majority (~57% in 2008) of small employers in the U.S. do not offer employer-sponsored health insurance. The percentage of small companies that offer employer-sponsored health insurance has been declining steadily since 1999. The main reason small employers do not employer-sponsored health insurance is cost.
States typically regulate small group employer-sponsored health insurance premium rates by placing limits on the premium variation allowable between groups. As a result, the insurance companies raise prices accross all small group to recover their costs.
Health Insurance Brokers play a significant role in helping small employers purchase employer-sponsored health insurance.