What Is Employer-Sponsored Health Insurance?

According to the United States Chamber of Commerce, employer-sponsored health insurance represented the single largest source of health coverage in the U.S. in 2023, providing health benefits to more than 160 million Americans. Today, this form of health insurance is considered the backbone of healthcare in the U.S., with health benefits being a deciding factor when choosing where to work for as many as 80% of working Americans.

There’s no denying that employer-sponsored health insurance is one of the best options to support employee health and satisfaction, while keeping costs down over time with a healthier workforce. However, it can become overwhelming for employers to keep track of the different terms, requirements, and types of employee health benefits. That’s why we’ve prepared a guide with all the information you need to know about employer-sponsored health insurance.

In this article, you’ll learn:

• The importance of employer-sponsored health insurance
• Key mandates under the Affordable Care Act (ACA) for Applicable Large Employers (ALEs)
• Different types of employer-sponsored health insurance options
• Definitions of common employee health insurance terminology
• How you can leverage experts like Vitable to streamline your benefits administration

What is Employer-Sponsored Health Insurance?

Employer-sponsored health insurance is defined as health coverage that's provided to employees (and their dependents) by their employer, sometimes in partnership with an insurance provider, depending on the type of insurance plan. According to the Kaiser Family Foundation (KFF), 60.4% of people under the age of 65 (approximately 165 million Americans) had employment-sponsored health insurance in 2023.

Employees receive coverage as part of their compensation package and are generally reimbursed for their eligible medical expenses. Employer-sponsored health insurance can provide a variety of employee health benefits, including coverage for preventative services, primary care and mental health services, prescription drugs, and more. These plans also often extend to spouses and dependents to provide comprehensive protection for entire families, although additional costs may apply.

Employer-sponsored health insurance is usually more affordable than individual health plans because employers typically share the cost of premiums with employees. The 2024 Employer Health Benefits Survey from KFF reported average annual premiums for employer-sponsored health insurance in 2024 of $8,951 for individual coverage and $25,572 for family coverage. Workers with individual coverage were responsible for contributing 16% of the premium, while those provided with family coverage contributed 25%. The remaining amounts were provided by employers.

The Importance of Employer-Sponsored Health Insurance

Although offering employee health insurance is not mandatory for all types of businesses, doing so can be extremely beneficial for both employers and employees alike! Essentially, it’s a win-win situation because your team gains peace of mind knowing they have a financial safety net for their well-being, while you benefit from a healthier and more productive workforce.

Key Benefits of Employer-Sponsored Health Insurance Plans

For Employers
• Attract and retain top talent by boosting employee loyalty
• Increase employee productivity with access to preventative and wellness programs
• Reduce taxable income by offering tax-advantaged coverage options

For Employees
• Greater financial security with reduced out-of-pocket medical expenses
• Improved health and wellness through comprehensive benefits coverage
• Access to critical healthcare services offers peace of mind
• Reduce taxable income with pre-tax

What is the Affordable Care Act (ACA), and How Does it Affect Employer-Sponsored Health Insurance?

The Affordable Care Act (ACA) represents a historic milestone in U.S. healthcare reform. The ACA was officially passed in March 2010 and aimed to make health insurance more affordable and accessible nationwide [6]. The ACA served to benefit employees by expanding their insurance coverage options and offering certain tax advantages for employers, depending on the size and structure of their workforce.

These are the three primary goals of the ACA:

1. Offer subsidies, also known as premium tax credits, to help low-income individuals and households between 100% and 400% of the federal poverty line (FPL) afford insurance.
2. Allow states to expand their Medicaid coverage to all adults with income below 138% of the FPL.
3. Support innovations in medical care delivery methods to lower healthcare costs in the U.S.

Under the ACA, most insurance plans are now required to cover essential employee health benefits and preventive services at no cost to policyholders. These apply to health plans sold on the Health Insurance Marketplace, which is a federal platform that offers insurance plans for individuals, families, and small businesses to explore and compare.