The Benefits of Salary-Based Health Plan Premiums

Employer-sponsored health plan premiums are the most common form of coverage in the United States. CNBC website confirms that approximately 147 million people are enrolled in this type of coverage. Providing health plan premiums signals the company’s interest in attending to their employees’ wellness needs and is one way to retain talented workers.

However, rising health care costs have driven employers to trim down their health plan expenses. Based on a 2016 Health Benefits Survey conducted by the Kaiser Family Foundation, annual premiums for employer-sponsored family health coverage peaked at $18,142 in 2016 which indicated an increase of three percent from the previous year.

Implementing the Salary-Based Premium Program

In face of escalating health care costs, a growing number of employers are embracing a salary-based premium program to pass on costs to their employees. This entails getting better-paid staff to contribute more toward their health care premiums. Employers favor this program because it’s considered a fair way to make health care more affordable for lower-income employees. At the same time, higher paid employees feel socially responsible as they are indirectly helping their lower income colleagues get access to health care.

As a matter of fact, large and medium-sized companies have a higher likelihood to adopt this program as they have sufficient workers in each salary tier to balance out premium disparities and compensate for lower premium contributions by lower-income employees.


  1. Staying Below the Threshold

Under the Patient Protection and Affordable Care Act, employers face penalties if they offer insurance coverage to their employees costing more than 9.5 percent of their incomes.

The above mandate triggers many employers to make the shift toward salary-based premiums to avoid such penalties and keep their health plan costs under control by having higher income employees contribute more toward their premiums to even out cost differences. Lower income employees, as a consequence of paying less toward their premiums, are offered a less comprehensive benefits package to keep expenses below the 9.5 percent mark.

  1. Comprehensive Benefits

Through a salary-based premium program, high-income employees enjoy comprehensive benefits not offered to their lower-income colleagues which make this system impartial.

  1. Tax Break

High-income earners can enjoy a tax break as a result of decreased taxable income since employee contribution to health care premiums is exempt from income taxes.

How Delayed Retirement Impacts Health Insurance Costs Read article

Bottom Line

Choosing to implement a salary-based premium program ensures that you comply with the Patient Protection and Affordable Care Act and keep coverage below the 9.5 percent threshold. It also saves your organization money in the long term by keeping health care costs in check.

Most importantly, implementing differentiated premium costs ensures that health care is affordable to lower-income employees. At the same time, it is attractive to high-income earners because of the tax break and wider insurance coverage. This makes it a win-win situation for staff at all levels of your organization. In turn, embracing a salary-based premium program provides your company with a competitive edge. By looking after the staff’s well-being, you can attract talent.

Bear in mind that communication is the cornerstone of a salary-based premium program. So, ensure that the rationale and benefits of the program are communicated clearly to your staff. Last but not least, emphasize that this program aligns with your organization’s philosophy of promoting a socially responsible workplace.

Stay up to date on the latest health care regulations and trends for your small business: subscribe to our monthly e-newsletter.

This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.

COVID-19 Resources: Managing Your Business During a Crisis