How does employer-sponsored health insurance work? A simple guide

Employer-provided health insurance is a benefit many companies offer to help cover employees' medical expenses. Instead of purchasing health insurance individually, employers offer reimbursements or other arrangements to help subsidize or cover the cost of insurance premiums.

A fair amount of Americans, 54.5%, are enrolled in employer-sponsored healthcare, making it the most common form of coverage for people with health insurance. Despite its popularity, understanding how it works and its total costs can be confusing. 

Read on to learn how employer-sponsored health insurance works. 

Enrolling: how, when, and how much? 

When to enroll

What does it mean if a person chooses to enroll in employer-sponsored health insurance? 

Most employers have an open enrollment period, typically once a year when employees can sign up for a health insurance plan. This is usually a few weeks long and allows you to review your options, compare plans, and make any changes.

However, if you miss this window, you might still be able to enroll if you experience a qualifying life event, such as:

• Getting married or divorced

• Having a baby

• Moving to a new state

• Losing other health coverage

• Getting a new job

• Being fired

This window is different when a new employee is hired. Employee eligibility for an employer-sponsored health plan will vary based on company policy. New hires may sometimes be eligible for coverage on day one. In other instances, an employer might institute a 30-day trial period before a new employee becomes eligible. However, health coverage for new employees must start within 90 days of hiring. 

How to enroll

Enrolling in employer-sponsored healthcare can look a few different ways. Employees might need to complete an online application or fill out a form provided by the HR department. Employees can plan ahead for enrollment by gathering the necessary documentation, including: 

• Personal information and health history

• Information of dependents covered through the plan

• Choice of plan

Cost of enrollment

Understanding the costs associated with employer-sponsored healthcare is crucial. Here are some terms employees might encounter: 

• Premiums. The health insurance premium is the monthly fee employees pay to maintain their health insurance coverage. Employers often cover some of this cost, but employees may have to pay the difference.

• Deductibles. A deductible is the amount an employee will pay out of pocket before insurance begins to cover costs. For example, if an employee’s deductible is $1,000, they’ll need to spend that amount on eligible healthcare services before their plan starts paying.

• Co-pays. A co-payment is a fixed amount for certain services, like doctor visits or prescription medications. For instance, an employee might have to pay a $20 copay each time they visit their primary care physician or $40 when they see their therapist.

• Out-of-pocket maximum. The maximum is the most an employee will pay out of pocket each year for eligible healthcare services. Once an employee reaches their out-of-pocket maximum, the insurance covers 100% of the expenses for the rest of the year. 

Enrollment costs will vary for employees based on their age, location, and the employer-sponsored healthcare plan they select. In 2022, the total average cost of premiums for single coverage was $9,664. For employee plus-one coverage, it was $14,943. For family coverage, the total average cost of premiums in 2022 was $21,931.

Benefits: standard coverage and more

Employer-sponsored health insurance can cover a range of services, including, but not limited to: 

• Preventive care like routine check-ups, immunizations, and screenings.

• Hospitalization, such as inpatient services and surgeries.

• Prescription drugs, including medications prescribed by a doctor.

• Emergency services include treatment for urgent medical issues.

• Mental health services, like counseling and therapy.

What and how much it is covered can vary significantly depending on the employer-sponsored health insurance plan. 

Employers may work with an employee benefits broker to determine the benefits and plans best fit their team and budget. Brokers work between employers and insurance providers to help create customized benefits packages that best align with the company’s needs. For instance, figuring out health insurance for startups with less than 50 full-time employees will look dramatically different than brokering a plan for a multi-location company with hundreds of employees.

Why network providers and coverage areas matter

Most employer health insurance plans operate within a network of healthcare providers. Here’s what that means for employer-sponsored health insurance.

Network providers

A network refers to a group of doctors, hospitals, and other healthcare providers under contract with an insurance company to offer their services to patients at reduced rates. Visiting an in-network provider typically results in lower out-of-pocket costs for employees.

Coverage areas

Health insurance plans may only cover services in specific geographic areas. If people travel or relocate, their coverage may be impacted by their provider. Some health plans offer nationwide networks, but others are more localized.

Leaving a job: COBRA and alternatives

If an employee leaves a job that provides healthcare, they still have options to continue coverage. 

COBRA

The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows employees to continue their employer-provided health insurance for a limited time—typically 18 months—after leaving a job. 

However, the former employee becomes the primary payer, including for the portion previously covered by the employer. Often, COBRA includes a small administrative fee.

Alternatives to COBRA

There are other ways for people to see coverage if they’ve left a job, including

• Marketplace plans. Health Insurance Marketplaces (exchanges) allow people to shop for individual coverage. Based on income, people may qualify for subsidies.

• Medicaid. Lower-income people might be eligible for Medicaid, a state and federally-funded program.

• Short-term health insurance can provide temporary coverage, but it might not cover pre-existing conditions. 

Employer-sponsored insurance made easier through ICHRA

The majority of insured Americans get their coverage through an employer--which can feel like a massive responsibility for already overburdened HR and benefits teams. But, finding health insurance that fits the needs of a diverse set of employees doesn’t have to be a challenge with Thatch. 

Thatch helps companies harness the power of ICHRAs (Individual Coverage Health Reimbursement Arrangement), empowering employees to pick coverage that suits them best while saving money overall. 

Want to work with Thatch? Reach out today to learn more. 

Employer-sponsored health insurance FAQs

How does employer-sponsored health coverage affect taxes?

Employer and employee-paid premiums are exempt from federal taxes. Additionally, employer-paid premiums are excluded from payroll taxes. 

What is the benefit of an employer-sponsored plan?

An employer-sponsored plan may offer coverage to employees at lower or no cost to them, depending on the employer. This can benefit both employers and employees, as it saves employees money and encourages retention, a long-term benefit for employers. 

What does it mean when an employer pays 100% medical premiums?

If an employer pays 100% of medical premiums, an employee does not have to pay monthly premiums for health insurance coverage. However, employees might still have to pay additional healthcare costs, such as co-pays, prescriptions, or out-of-pocket expenses. 

How much do most employees pay for health insurance?

In 2022, the total average cost of premiums for single coverage was $9,664. For employee plus-one coverage, it was $14,943. And for family coverage, the total average cost of premiums in 2022 was $21,931.