Health benefits have essentially become an expectation among employees, but the key to offering plans that can retain valuable talent lies in the details. When we asked 752 working adults what health insurance issues would make them consider quitting, several concerns came up:
High out-of-pocket costs (60%)
High monthly premiums (59%)
Limited provider networks (47%)
Low employer contributions (45%)
Meanwhile, premiums have risen 24% since 2019. In fact, 68% of small business owners surveyed in our 2025 Health Insurance Industry Trends report named rising costs as their top concern. This makes providing health insurance that meets employees' expectations — without compromising financial stability — one of the biggest challenges for employers.
In this post, we’ll discuss the average employee health insurance costs per month, along with projections for 2025 and beyond. This can give you an idea of how you fare against market standards and help you negotiate for better insurance premiums in the future.
Average employer and employee health insurance costs per month
Let's cut straight to the numbers every employer needs to know because understanding these costs is the first step to controlling them.
According to the Kaiser Family Foundation’s 2024 Employer Health Benefits Survey, the average monthly premium is $746 for single coverage and $2,131 for family coverage — with employees usually contributing 16% of costs for single and 25% for family coverage.
The amount employers pay for health insurance is around $626 for single and $1,598 for family coverage. Employees cover the remaining $119 and $533, respectively.
What does this mean for 2025 and beyond?
Keeping with the upward trend of rising premium costs, employers can expect a 5.8% increase in premium costs in 2025, according to Mercer. And that’s after making adjustments to current plans. PwC projects a slightly higher 8% increase for group (or employer-sponsored) health plans.
While both reports acknowledge that inflation has mostly cooled since 2022, they also highlight certain “healthcare-specific inflators” that will likely influence premium costs in 2025 and into the future. These include:
Increased spending on high-cost prescription drugs, particularly for managing chronic conditions. In fact, the drug benefit cost per employee rose 7.2% in 2024.
Higher demand for behavioral healthcare, including integrated physical and mental health services that go beyond traditional therapy models.
Key factors influencing employer health insurance premiums
Not all businesses pay the same for health insurance, even when offering identical coverage. Understanding why could transform how you approach benefits and potentially save thousands per employee annually.
While average premiums offer a useful benchmark, the actual cost of group health insurance can vary by quite a large margin depending on your location, industry, company size, and plan type.
Plan type
Different plan types — Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), Exclusive Provider Organization (EPO), and High-Deductible Health Plan (HDHP) — have different costs because they vary in coverage levels, network flexibility, and out-of-pocket expenses.
For example, HDHPs would lower the premium cost but increase employees' out-of-pocket costs. PPOs, on the other hand, have higher monthly costs but better provider flexibility.
Company size and risk pool
Just like the type of plan, your company’s characteristics will also influence the average health insurance cost. Larger firms often pay lower premiums than smaller ones because they spread risk across more employees.
Similarly, firms with younger workforces (less than 35% over age 50) typically see lower premiums, since younger employees are considered healthier — and less likely to visit hospitals.
Geographical location
The 2024 Kaiser Family Foundation report also found premiums to be higher in the Northeast than in the South ($814 vs. $710). This could be the result of several factors, including state-wise network adequacy requirements, access to specialized care, local wage scales, and administrative expenses.
For example, a day at the hospital would cost $2,366 in Florida, compared to $3,070 in New York. It makes sense that the average employee health insurance cost per month would be higher in the latter.
Coverage level and cost-sharing
Lastly, employers pay significantly less for employee-only coverage than for “employee and spouse” or “employee and family” coverage.
However, adjusting the employee contribution percentage can be a good option if you want to increase the coverage level without increasing average health insurance costs.
While most employees contribute 25% of the premium for family coverage, those in smaller firms are known to contribute 33% or more. It’s still a better deal — because premiums can cost upwards of $1,500 per month for private health insurance.
Going beyond traditional plans for strategic cost management
With rising medical costs, most employees prefer to include their families in their employer-sponsored health insurance plan. It costs around $2,000 to $2,500 per month for a family of four — almost triple what employers would pay for single coverage.
This can be quite a challenge for small businesses. In fact, according to a recent Thatch survey, 93% of small business owners worry their current health benefits plan might not work long-term.
The good news: Most small business health insurance providers are open to negotiations, especially if you opt for a multi-year contract. You can also adjust the different parameters in your group health insurance plan to bring down the average health insurance costs. This can be:
Increasing deductibles if most of your employees are under 40, as they’re less impacted by higher out-of-pocket costs.
Narrowing provider networks if you’re not a distributed company, as regional networks cost less than broad nationwide networks.
Setting tiered co-pay options — for example, employees pay less out-of-pocket for regular check-ups and more for emergency visits.
Apart from the above strategies, non-traditional options like Health Reimbursement Arrangements (HRAs) can also be sustainable alternatives. These are fixed-amount, employer-funded accounts that reimburse employees for insurance premiums and medical expenses.
The most popular HRA is the Individual Coverage Health Reimbursement Arrangement (ICHRA). Unlike traditional group health plans, ICHRAs let employees choose their own individual insurance plan and healthcare services — as long as the costs fall within the employer’s reimbursement limit.
This means more flexibility for the same health insurance budget, especially as you can set different reimbursement amounts for different employee groups.
Small businesses with fewer than 50 employees can also consider a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). While these are similar to ICHRAs, there are two key differences:
There’s an annual cap by the IRS — for 2025, it’s $6,350 for individuals and ~$12,800 for families.
You can’t set different reimbursement limits for different employee segments.
However, this simplicity can mean less administrative work.
Like QSEHRAs for small businesses, self-funded insurance can be a flexible and cost-effective option for larger firms — especially those with dedicated HR or payroll departments.
Here, employers reimburse medical claims as they arise instead of paying a fixed health insurance premium for each employee.
| ICHRA | QSEHRA | Self-funded insurance | |
|---|---|---|---|
| Best suited for | All businesses | Businesses with <50 employees | Large firms |
| Reimbursement limit | No caps | $6,350 individual / $12,800 family in 2025 | No caps — employer pays actual claims |
| Flexibility for employees | High — they can choose from any individual insurance plans | Moderate — their individual insurance plan should be under the IRS limit | Low — the employer determines claim eligibility |
| Risk for employer | Low — costs are fixed | Low — costs are fixed | High — claim costs are unpredictable |
| Tax advantages | Tax-deductible for employers; Tax-free for employees | Tax-deductible for employers; Tax-free for employees | Tax-deductible for employers |
How to offer competitive benefits in a cost-effective way
A young employee might prefer an HDHP plan with low premiums and coverage for elective procedures like LASIK surgery. Meanwhile, someone with a chronic condition might prefer a PPO as it allows easy access to specialists. Not to mention that many employees now expect wellness initiatives in their health benefits plan.
In fact, Deloitte’s 2025 survey shows 40% of Gen Z and 34% of millennials feel stressed most of the time, with jobs being a major stressor. Culture helps, but so do better benefits — because 62% of Gen Z and 68% of millennials who are satisfied with their pay and benefits also report good mental health.
This is a common reason why employers are shifting away from traditional group health insurance (with its fixed costs and rigid terms) and considering HRAs.
According to the HRA Council’s 2024 report (which surveyed 11,000 US employers), 17% of businesses moved from traditional insurance plans to ICHRAs and QSEHRAs in the previous year. Not just that, 83% couldn’t afford to cover health insurance until they made this switch.
More interestingly, this was the first time these businesses could offer competitive health benefits beyond insurance — such as Health Savings Accounts (HSAs), alternative care coverage, and even pet insurance.
How to implement ICHRAs without admin overload
While HRAs are great ways to balance flexibility with costs, administering benefits is not without its complexities — especially at smaller companies. Employers not only need to choose specific benefits, but they also need to track spending, process claims, and ensure compliance with federal regulations.
An easy (and cost-effective) solution is automating the process with a modern health benefits platform (like Thatch). Here’s how this works:
Employers set a healthcare budget and assign reimbursement limits for different employee segments based on team, status, or location.
Employees pick from a curated list of health, dental, and vision plans, plus additional wellness benefits like mental health apps or fitness reimbursements.
The platform automatically creates a custom ICHRA for each employee based on your reimbursement limit and their package.
FAQ
Beyond premiums, what other healthcare-related costs should employers anticipate covering or contributing towards for their employees?
While covering health insurance premiums is a great way to support employees, it’s not the only way. For the best employee satisfaction rates, you should consider a holistic health benefits plan that includes wellness programs, preventive care packages, and telemedicine services.
Are there specific tax advantages or incentives available to employers for offering certain types of health insurance plans?
Yes, there are multiple tax advantages — the most important being that employer-paid premiums are excluded from both federal income and payroll taxes.
Businesses with fewer than 25 full-time employees may also be eligible for tax credits of up to 50% of the premiums.
How often do health insurance costs for employers typically fluctuate year-over-year?
Health insurance costs generally increase annually (in January) based on the previous calendar year’s medical cost trends. This is also why you might be able to lock in lower premiums from September to December when compared to January.
However, employers won’t see these changes reflected in premiums until their current plan comes up for renewal (at the end of their policy year).
What are some unique challenges small businesses face when managing employee health insurance expenses compared to larger organizations?
Not only do small businesses pay higher per-employee premiums, but they also encounter several other challenges. This includes a smaller risk pool (one large claim can result in a dramatic increase in average premium costs), restrictive insurance plans, and significant admin work.
Let Thatch help you make informed decisions about health benefits
The average cost of employee health insurance is expected to rise year to year. In the coming years, it could well exceed the 5.8% increase projected for 2025. So, while group insurance plans can be effective — especially if you’re a good negotiator — modern alternatives like ICHRAs offer more value at the same cost.
With a partner like Thatch, businesses can offer employees custom ICHRAs while controlling costs at every step—whether that’s setting team-wise reimbursement limits, employee contribution levels, or deciding on dependent coverage.
Employees, on the other hand, have full flexibility in picking their insurance plans. They also have access to the Thatch Marketplace, where they can choose from dozens of health products and services—all available at member pricing.
Book a free demo to learn more about how Thatch can help you design personalized health benefits packages for your employees.
