Q: How Do Employer Health Insurance Contributions Work?

Employer contributions help spread out the cost of health insurance between employees and employers so it’s easier for both sides to handle.

Gusto makes payroll, benefits, and HR actually easy.

Employers choose a health insurance plan and then determine the amount they’ll cover—for instance, 75%. Your employees will be responsible for the plan’s remaining costs.

What does the Affordable Care Act require?

The Affordable Care Act (ACA) states that employers with 50 or more employees need to offer health plans that meet the minimum value standard. This means employers have to provide health insurance that’s economical, comprehensive, and covers, on average, at least 60 percent of their employees’ medical care.

Plans also have to “substantially” cover physician and inpatient hospital services.

A plan with minimum essential coverage, or a “qualified health plan,” meets all ACA requirements—including covering essential health benefits and following limits on cost-sharing. Learn more about minimum essential coverage here.  

What percentage of health insurance do employers have to pay?

As an employer, the amount you have to contribute to your employees’ group health plan varies by insurance carrier. Insurance carriers generally require that companies contribute to at least half of employee premiums. A few states, like New York, allow you to contribute whatever you would like, going as low as 0 percent contribution. Find out more about state laws here.

Despite that rule, many employers decide to take care of even more of the cost. However, remember that contributing extra is totally up to you.

To give you an idea of how much employers pay, The Kaiser Family Foundation found that in 2018, companies contributed an average of 83 percent toward premiums for single health insurance and 72 percent for family coverage.

You may be able to contribute 100 percent towards your employees’ group health plan, but the implications of that decision vary by insurance carrier. Some carriers say that if you contribute 100 percent, you also have to have 100 percent enrollment in the plan. Some carriers don’t have that stipulation.

When it comes to contributions, it’s important to consult with your broker so that you follow all regulations and also pick an amount that is right for your business.

Gusto makes payroll, benefits, and HR actually easy.

What does an employer contribution look like?

Imagine that Jillian is one of your employees at your toy store. She has a gold HMO, and her premium costs $250 a month. This is how one situation could play out:

  • Monthly health premium for Jillian: $250
  • Your toy store pays: $220 (88%)
  • Jillian pays: $30 (12%)

That means that for each pay period, Jillian will have $30 subtracted pre-tax for her health premium.

Let’s say you have four employees on your team. Your company pays a chunk of the insurance bill for the entire team each month:

  • Monthly premium for Jillian, Jack, Joe, and Jerrold: $1,000
  • Your toy store pays: $880 collectively (88%)
  • Jillian, Jack, Joe, and Jerrold each pay: $30 (12%)

Keep in mind, if Jack has a higher premium than Joe—for example, if he’s older or a smoker and your insurer prices policies individually—the exact costs would adjust slightly based on the percentage you chose to contribute.

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