Stephanie Dwilson

Employer-Sponsored Health Plan: Understanding How the Plan Works

An employer-sponsored health plan is typically the best choice for employees who have an option between getting a plan offered by their company versus purchasing an individual plan on the marketplace. Employer-sponsored plans tend to be more comprehensive and frequently offer lower premiums. Here are some facts to encourage your employees to join the health plans you offer.

(Note: As you’re educating your employees about health plans, know the current laws. Despite the May 4 approval of the American Health Care Act (AHCA) by the U.S. House of Representatives, the Affordable Care Act (ACA) is still the current law. See more about this in the article’s last paragraph.)

Defining Employer-Sponsored Plans

Simply put, employer-sponsored plans are group health plans that employees can obtain through the businesses that they work for. Group coverage means that an entity is offering the plan to every individual within the group. Because it’s being offered to a group where the risk is pooled among employees, the premiums are sometimes lower than what individuals can get on their own. Premiums are also lower because the ACA has many rules governing employer-sponsored health care plans. For example, employees’ plans must be affordable and can’t exceed 9.5 percent of their household income. Plans offered to dependents and spouses, however, can exceed that cap, according to Intuit.

In addition, employers often cover part of the premium cost themselves, meaning the cost for employees is less than if they went out and got coverage on their own. Employees who work for companies that cover part of their spouses’ and dependents’ premiums enjoy even more savings.

Defining Individual Plans

On the other hand, individual plans are options one can get outside of your company. They may be offered on the marketplace and, depending on one’s income, come with subsidies to help cover the premiums. However, an employee can also get individual plans outside the marketplace. Many insurance providers offer health plans for individuals, such as those who are self-employed or who just don’t like the plans offered by their employers. But these are often more expensive and, if they aren’t qualified ACA plans, may not cover basic care that you’ve come to expect.

Group Plans vs. Individual Plans

Group plans are historically more popular than individual plans, accounting for the majority of non-elderly people’s health coverage, according to the Kaiser Family Foundation. As mentioned earlier, part of this reason is that group plan premiums are often lower than those of individual plans, but they have another advantage: They’re typically more comprehensive in their coverage, too.

For plans on the exchange, both individual and group plans must meet the basic coverage requirements of the ACA. However, employers may often go above and beyond the basics so that they can attract top talent with a comprehensive benefits package. This means that your group plan may offer extras you won’t find in individual plans, like dental coverage, accident insurance and health savings accounts.

And if an employees is considering an individual plan that’s off the exchange, he or she will see a bigger difference between off-exchange plans and employer-sponsored plans. Most off-exchange plans don’t spare someone from a tax fine because they keep their premiums lower by not meeting ACA standards. This also means that their coverage is typically far less comprehensive. These off-exchange plans may not offer maternity care or cover pre-existing conditions, for example. In general, employees are typically better off going with employer-sponsored plans versus striking out and getting their own coverage.

Remember that the laws cited in this article apply to the ACA, which could be repealed later this year. As an employer, however, it’s wise to encourage your staff to join the employer-sponsored health plan you’ll be offering, whether or not the law changes.

Stephanie Dwilson has extensive experience providing expertise on topics including health, law and marketing. She’s a science journalist published by Fox News, a marketing expert and a non-practicing attorney with experience in personal injury law. She’s also a small business expert featured by Businessweek and has worked as a PR lead for one of the largest churches in America.