Key Things to Know About Employer-Sponsored Health Insurance (and Alternatives to Consider)

Looking for the best health insurance plan? Your employer-sponsored health insurance policy is one option worth considering. 

Employer healthcare plans are unique in that they are accessible only to employees of a company. However, exclusivity doesn’t necessarily mean that employer-sponsored health insurance policies are superior. Other options exist, which may provide better coverage or rates depending on your particular circumstances.

This page provides an overview of employer health insurance plans and goes over potential alternatives that you may want to consider. No matter where you get your health insurance plan from, it’s important to pick a health insurance company that best suits your needs. A convenient and digital method of accessing healthcare services means you always get the high-quality service you deserve at your fingertips—as frequently or infrequently as you may need it.

Employer Mandate Under the Affordable Care Act 

The Affordable Care Act (ACA), also sometimes referred to as “Obamacare”, created a health insurance mandate for employers when it became a law in 2010. Large employers with 50 or more full-time employees are now required to offer group health insurance plan options to their full-time employees. 

Small firms and small employers with fewer than 50 employees may still offer health insurance plans thanks to the federal tax credit incentives that they can potentially receive for doing so. However, small businesses are not technically required to offer health insurance coverage under the ACA.

Employer Health Insurance Eligibility 

Depending on your role at your company, you may or may not be eligible to purchase a healthcare plan that is offered by your employer.

Full-time employees

Employers that meet the ACA’s criteria for the employer mandate but do not offer  health insurance to full-time employees will potentially need to pay a fine. According to the IRS, “an employee is a full-time employee for a calendar month if he or she averages at least 30 hours of service per week or has 130 hours of service in the month”.

Spouses and Children

If a full-time employee claims dependents under the age of 26, the employer is required to offer family coverage to those dependents. The ACA does not require employers to extend healthcare coverage to the spouses of full-time employees or dependents over the age of 26, but many choose to anyway to increase employee satisfaction.

Part-Time Employees

Employers are not required to offer health insurance plans to part-time employees. A part-time employee is any employee that does not meet the criteria for a full-time employee (defined above).

Contractors

Employers are not required to offer health insurance plans to independent contractors. However, employers should be very careful to not misclassify their full-time employees as independent contractors in order to avoid the employer mandate. Doing so can result in being fined.

Types of Coverage Included in Employer Health Insurance Plans 

There are a few different types of healthcare plans that may potentially be offered by your employer. Each has its ups and downs to consider before making a final decision.

Health Maintenance Organization (HMO)

HMOs can be limiting because you are usually not covered if you go directly to a specialist of your choosing. Instead, you must choose a primary care physician (PCP), then go to your PCP when you have a health concern. Your PCP can then refer you to a specialist. Once you visit the specialist after a recommendation from your PCP, you’re covered.

HMOs generally require you to choose from an approved list of local doctors, specialists, and hospitals. If you venture outside of the approved network of healthcare professionals under an HMO, you will likely have to pay completely out of pocket.

Preferred Provider Organization (PPO)

PPOs are similar to HMOs with one key difference: the approved list of local doctors, specialists, and hospitals is more of a recommendation than a requirement. PPOs will usually still offer some form of financial assistance even when you go outside of the network.

This type of financial assistance you receive may be given in the form of coinsurance. Coinsurance usually requires you to pay up to a certain deductible completely out of pocket.

High-Deductible Health Plan (HDHP)

A HDHP is just what it sounds like — a healthcare plan where you have to pay a high deductible when you want to receive healthcare services. A deductible is a one-time fee associated with a healthcare service that is not covered by your insurance company.

In exchange for paying a high deductible, your monthly health insurance premium is usually significantly lower than it is with other types of healthcare plans. 

For 2021 and 2022, the IRS defines a HDHP as “any plan with a deductible of at least $1,400 for an individual or $2,800 for a family”.

Health Reimbursement Arrangements (HRA)

An HRA is a unique type of health insurance plan where an employer will compensate an employee for healthcare services up to a certain dollar amount every year. This compensation usually covers both premiums and deductibles.

HRA funds often roll over to the next year, making this “savings account” type of plan ideal for those who rarely make use of healthcare services.

Individual Coverage Health Reimbursement Arrangement (ICHRA)

An ICHRA is another unique type of employee health insurance plan where employers will compensate employees for costs associated with individual health insurance plans, such as those purchased on Marketplace, up to a certain dollar amount every year. The Marketplace is an insurance market run by the federal government where you can shop for and enroll in healthcare plans.

Reimbursements made from an employer to an employee under an ICHRA are generally not taxable.

When Does It Make Sense to Enroll in Employer-Sponsored Health Insurance?

For most individuals, employer-sponsored health insurance plans will be suitable in terms of health benefits, premiums and deductibles. In fact, more than 156 million Americans are covered through employer-sponsored insurance plans.

However, rather than going with your employer’s healthcare plan by default, it’s wise to explore your other coverage options. 

Other Alternatives to Employer Health Insurance

Alternative health insurance options may be ideal for individuals with specific needs or who meet specific criteria. When you do your due diligence, there’s always a chance you can get you more bang for your buck—similar coverage with lower costs, or better coverage with similar costs.

Individual Plans

An individual plan refers to any healthcare plan that is purchased outside of an employer plan or a government-run healthcare plan. Individual plans may be purchased on the Marketplace at healthcare.gov during the open enrollment period.

COBRA

COBRA, the Consolidated Omnibus Budget Reconciliation Act, usually allows you to stay on your former employer’s health insurance plan for up to 18 months. However, COBRA does not require your former employer to continue assisting with healthcare cost-sharing (such as monthly or annual premiums), which means that COBRA plans are often more expensive than traditional employer-sponsored plans are.

Short-Term Health Insurance

Short-term health insurance plans are often more expensive and less comprehensive than the other options described on this list. They generally work best as a temporary solution while you are uninsured in between other plans, such as if there is a lapse in coverage between your old and new employer and you do not wish to take advantage of COBRA. 

Medicaid

Medicaid is a low-cost insurance plan that is offered by the federal government to low-income individuals and families. Use this calculator to see if you qualify for a Medicaid health insurance plan. Factors such as income tax are used to automatically determine if you are eligible.

Medicare 

Medicare is another government-run healthcare offering that is available to seniors over the age of 65 and some younger individuals with disabilities. Use this calculator to check if you qualify for Medicare and see what your premium amount will be.

Learn More about Employer-Sponsored Health Coverage 

Employer-sponsored healthcare plans come in all shapes and sizes. Before committing to any particular plan that your employer offers, be sure to understand the specifics of the plan, particularly with regards to your monthly premium and any deductibles you will be responsible for.

If you’re eligible for any alternative healthcare plans, such as Medicare or Medicaid, it also makes sense to look into those types of plans, as you may be able to get a better deal than if you were to go with your employer’s plan.

No matter what route you choose when purchasing health insurance coverage, it’s vital to choose the right health insurance company. When the time comes to use healthcare services, the last thing you want to deal with is an unhelpful insurance company that causes you hassles and delays. The right health insurance company will always put the mental health and physical wellness of the patient first and ensure you can conveniently access the doctors and specialists you need to, when you need to.

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