Health insurance is important. We all know that. It’s something we’re trained to think about from the start of our careers. “Make sure to ask about pay and benefits,” everyone tells you as you head into the interview.
We can even flip the script.
As a manager, when going into hiring, you never just look at the wages. You have to consider all of the important factors that go into the cost of a new employee together. The second most expensive thing after wages? Health benefits.
How much do employers pay for health insurance? This isn’t a simple question to answer. Thinking of the costs of employer health insurance in terms of total dollars is not easy. This is why this question is by far one of the most asked by the people I get to help. It’s worth a blog and a video!
Always remember—it’s not just employers who are paying!
Before we start talking about how much employers pay for health insurance, it’s important to mention that they are not the only ones that are having to cover the expense. Almost always, employees are covering at least some portion of their plan cost.
The baseline for contribution from the employer is 50% of the employee-only costs. Now, there are a lot of details behind this, and even some ACA laws that guide this particular amount for large employers specifically. However, it’s important to know that employees are starting to have to cover more and more. This is hugely problematic because not only are they having to pay for more of the expense for the initial plan, but they also have to pay for the out-of-pocket costs for medical bills, too.
When we know that 67% of personal bankruptcies are still being caused by healthcare costs, helping employees is more crucial now than ever. This is also why 6 out of 10 employees have said the most important decision-making factor about whether they keep their current job or go and find a new one is what their company is offering for health benefits. Do you see why this info is crucial?
Now that we have the groundwork laid out for the topic at hand, let’s look at three different answers to the question, how much do employers pay for health insurance?
1. Employers are paying too much for health insurance.
My first answer is employers pay too much! Sure, this might seem like a cheap answer. It doesn’t make it not true! Especially when you look at the actual data.
Employer health insurance costs have gone through the roof over the past two decades. Specifically, it has increased by 368%+ since 1999. While many people blame the Affordable Care Act (ACA) for making costs go up more, if you actually follow the trend line upward, we are right where we should have expected to be all those years back prior to the ACA’s establishment.
The latest data from the Bureau of Labor Statistics indicates that 29.6% of total compensation is spent on employee benefits. By the end of this year, the expected costs per employee + employer will be $15,500 annually to provide some sort of healthcare coverage.
Just think about this for a second. This is the national average! That means some cost even more than that. This cost has gotten so heavy to the point that employers are having to make strategic decisions based on what their renewals may or may not be every single fall.
This is not sustainable anymore.
Which is why it’s changing. The same way 401(k)s came on the scene in the 1980s.
That’s right. Health benefits are undergoing the same change that retirement benefits went through almost 50 years ago. Remember pension plans? Well, you probably never had one, but you’ve probably heard of them. What you probably heard was how expensive they were—and eventually how they all just imploded.
Sounds a little like deja vu, don’t you think? That should excite you! Why?
Because the 401(k) of health benefits already exists. It’s called “managed individual” and it’s the same concept as 401(k) strategies. The employer gives money to the employees, and the employees decide how to spend the money. Simple as that! There are some incredible benefits to this model as well, especially when you’re talking about options and discounts on health plans for individuals. It’s amazing!
If you are stuck in those old group plans where one-third of your total spend on an employee is going to benefits and it keeps going up every year, you are spending too much. There is a better way, and that way is “managed individual” health benefits for your employees.
2. Employers are paying too little for health insurance.
My second answer for how much do employers pay for health insurance is… too little! That’s right! You might be thinking I am talking out of both sides of my mouth right now, but so are small businesses!
You see, out of all the complaining that is out there about health insurance, did you know that only 31% of companies that have less than 50 employees even offer any sort of health benefit to their teams? That means that 7 out of 10 small businesses are not doing anything to help their employees with healthcare. I don’t blame them. I mean, when you look at the data above, it can feel like an insurmountable task to provide anything substantial, right?
It depends on your budget. Most organizations have something they can give. It’s just that they don’t realize there is a “stair-step approach” they can take to finally get into benefits — maybe again, or maybe even for the first time. You can easily throttle in a brand new benefit to the team in a more flexible and accessible way than has ever been possible before.
Yes, it’s that same managed individual model that I mentioned earlier.
When you consider in this hiring climate that the most competitive feature you can offer your team is health benefits, it should indicate how you budget your dollars. Even more importantly, maybe it’s already in your budget, but you can just reallocate and spend those dollars smarter? Based on the numbers, and based on what is being seen in the industry trends, if you don’t decide to improve your efforts on retaining and recruiting top talent, then it will likely be made for you.
What if it is more accessible than ever before? What if I told you that in the past 3 years, Remodel Health has been able to see employers put $65 Million back into their organizational budgets while improving their team’s coverages. We’re talking about real money, and real budgets, for real people and real companies that got smarter and more competitive with their employer health insurance costs.
3. Employers are paying just the right amount for health insurance.
My third answer for how much do employers pay for health insurance is… (and you’ve probably guessed it by now) …just right! It’s going to come as no surprise to you that these are those employers who have ditched those old, overpriced, outdated traditional group health plans for the newer, better, cheaper method of health benefits called “managed individual”.
More people than ever are using individual plans instead of group plans. The American consumers are making their voices heard. More carriers than ever with more plans than ever with costs being stable and even in the past 3 years going down. This is the difference-maker that the industry has been waiting for over the past 20 years, and the proof of seeing individual plans succeed over the past 7 years is very exciting!
You can see in the graphs above that not only are individual plans cheaper than group plans but that on average, employers who make this change for their team end up putting more money back into the pockets of their employees. I’d say that is a competitive advantage, for sure!
So maybe you need to stop asking how much do employers pay for health insurance, and instead start asking how you can step into the future of health benefits and not get left behind in that old pension-plan-style of group health benefits. Maybe it’s time to give your team the 401(k) of health benefits that they deserve?
Overview of Employer Health Insurance Contributions
Over the decades, employer-sponsored health insurance contributions have shifted dramatically due to major healthcare reforms. The ACA in 2010, for example, mandated minimum essential coverage, raising health insurance costs for many employers.
Before the ACA, reforms like the 1996 Health Insurance Portability and Accountability Act (HIPAA) also impacted employer costs by requiring coverage for pre-existing medical conditions. The introduction of the Medicare Modernization Act in 2003 expanded prescription drug coverage and added new costs for employers.
Each of these reforms has influenced the rising costs and contribution strategies of employer health plans. As a result, employer contributions have continued to evolve, varying significantly depending on the industry and company size. Below are the average contributions by employers across various industries:
- Manufacturing: $5,000 to $8,000 per employee
- Technology: $7,500 to $12,000 per employee
- Retail: $3,000 to $5,500 per employee
- Healthcare: $6,000 to $10,000 per employee
These numbers highlight how employer contributions differ. Small businesses often contribute less due to budget constraints, while medium and large businesses may offer more comprehensive plans, reflecting differences in resources and ability to cover medical expenses.
How Much Do Employees Contribute to Your Health Insurance?
Health insurance costs vary significantly depending on the type of plan offered. A Health Maintenance Organization (HMO) and Exclusive Provider Organizations (EPOs) often have lower premiums, while Preferred Provider Organizations (PPOs) and High Deductible Health Plans (HDHPs) may have higher costs but more flexibility in provider choice.
Higher costs are usually associated with plans offering broader networks and lower out-of-pocket expenses for covered workers.
Employer contributions differ between self-funded plans, where employers assume the risk, and fully insured plans, where an insurance carrier covers the risk.Additionally, age and health status of the workforce directly impact health insurance coverage costs. Employers can manage costs related to high-risk employees by:
- Promoting wellness programs
- Offering tiered plans
- Encouraging preventative care
- Providing access to telehealth services
Regional Cost Differences
Health insurance costs also vary by region. For example, states like Alabama have lower contribution expectations, while New York has higher rates. California sits in the mid-range due to diverse population health needs and regulations.
State-specific mandates, like minimum coverage requirements, can also affect how much employers need to contribute to covered workers and family coverage. Certain states like Michigan and Vermont also impose specific taxes or fees on health plans, further influencing employer contribution levels. These factors make it essential for employers to stay informed about regional regulations and adjust their health insurance contributions accordingly.
How Much Do Employees Contribute to Your Health Insurance?
Employees typically contribute a portion of their health insurance premiums, which can vary widely. On average, employees pay about 17% of the premiums for individual coverage and 28% for family coverage under employer-sponsored health coverage.
However, the percentage employees pay can differ based on the plan type and company policies. Employee contributions also depend on whether the coverage is for the employee alone or includes dependents, with family coverage generally costing more.
Impact on Employee Satisfaction and Retention
Health insurance benefits are a key factor in employee loyalty. For instance, companies that shift from minimal group health insurance contributions to more substantial support often see improved retention. Better health benefits show employees they are valued, leading to higher job satisfaction and a stronger commitment to the company.
Innovative Approaches to Managing Health Insurance Costs
With rising health insurance costs, employers are finding new ways to offer health insurance while maintaining control over expenses.What are some of these innovative approaches you can implement to reduce costs?
Managed Individual Health Benefits
This model allows you to provide a budget for employees to purchase health insurance. Companies can adopt this approach by partnering with benefits administrators who guide employees in selecting individual health plans that meet their needs. This strategy offers flexibility and often results in cost savings for employers and employees.
Wellness Programs and Preventative Care
Implementing wellness programs like fitness challenges and stress management workshops can improve employee health and reduce claims. Encouraging preventive care, like regular check-ups and screenings, minimizes the need for costly medical services over time. These programs lower health insurance costs and boost employee morale and productivity.
Telemedicine Services
Offering telemedicine as part of employer-sponsored insurance provides access to medical services at a lower cost. Employees benefit from convenient care while you proactively reduce health insurance costs associated with in-person visits. This approach also increases remote or busy employees’ access to healthcare, enhancing overall satisfaction.
Cost-Benefit Analysis of Employer Health Insurance
Evaluating the ROI of health benefits helps in understanding their value to your organization. Methods for calculating this include measuring employee retention, reduced absenteeism, and increased productivity linked to better health outcomes.
However, you need to ensure these benefits align with your company’s goals and budget constraints while maximizing their positive impact. Balancing health insurance costs with overall productivity involves considering the impact of employer-sponsored coverage on employee well-being and performance.
Alternative Compensation Strategies
Employers can explore other ways to compensate employees beyond traditional health insurance programs.
- Higher Salaries vs. Comprehensive Health Benefits: Offering higher salaries instead of extensive benefits can attract talent but may not provide long-term security.
- Flexible Benefits: Allowing employees to choose from various benefits, such as gym memberships or childcare, can boost satisfaction and retention.
- Health Savings Accounts (HSAs): Pairing employer contributions with an HSA can offer a cost-effective way to provide health coverage while giving employees more control over their medical expenses.
Practical Steps for Employers
To optimize your health insurance offerings, evaluate your current plan to see where improvements can be made. Conduct a health benefits analysis with these steps:Practical Steps for Employers
- Collect Data: Gather information on current costs, employee usage, and feedback.
- Benchmark: Compare your plan to industry standards and similar companies.
- Analyze: Identify trends, such as high-cost claims or low participation rates.
- Review Contracts: Evaluate terms with your insurance company and healthcare providers for potential savings.
Once you have analyzed your plan, pinpoint areas for cost savings and enhancements. Implement changes by transitioning from traditional group plans to modern options like ICHRA.
Communicate these changes effectively to employees by providing clear explanations, hosting Q&A sessions, and offering support to help them understand new options. Share detailed resources like FAQs and step-by-step guides to ensure everyone feels informed and comfortable with the transition.
Understanding How Much Employers Pay for Health Insurance
Determining how much employers pay for a health insurance plan involves multiple factors, including plan types, employee contributions, and regional regulations. Employers must carefully evaluate their current health insurance program and consider innovative strategies, such as managed individual health benefits, to optimize costs while maximizing value for employees. By strategically balancing costs and benefits, businesses can create a sustainable health insurance program supporting employer goals and employee satisfaction.
Learn more about how Remodel Health’s ICHRA+® product can benefit your organization
Blind decisions are bad decisions.
This is why Remodel Health has developed our proprietary Health Benefits Analysis for your team. This secure and compliant evaluation of your organization will provide you with the exact outlook for what getting started with managed individual health benefits can look like. Before you don’t click on the link, don’t worry—it’s only $35 per employee. Yeah, that’s it! While it would normally cost about $9,500 to accomplish this, you can get it done cheaper and more easily than ever.
Head on over to remodelhealth.com/analysis to get started today in the future of health benefits!
Important Notice: Remodel Health does not intend to provide specific insurance, legal, or tax advice. Remodel Health always recommends consulting with your own professional representation to properly evaluate the information presented and its appropriate application to your particular situation.