Employer-Based Insurance Explained

What is it and who does it include?

Most Americans — 162 million — get health insurance through their employers. Sixty percent of employers offer health benefits, according to a new survey┬áby the Kaiser Family Foundation and the Health Research and Educational Trust. Generally, employers subsidize the cost of the insurance, but workers share the expense through a variety of payments, including premiums, co-payments and deductibles.

Bigger companies are more likely to offer health insurance. Ninety-five percent of employers with more than 50 workers and almost three-quarters of companies with 10 to 24 workers provide insurance. But fewer than half of employers with three to nine workers give their employees health benefits.

Workers often don’t have much choice of insurance plans, especially at smaller firms, according to the survey. About 86 percent of companies that provide benefits offer only one insurance plan. Larger employers tend to give more choices. Overall, about 53 percent of covered workers have a choice of plans. Most employers offer prescription-drug coverage as part of their insurance plan, although often workers are required to pick up some of the costs.

About 60 percent of people who get their insurance through work are enrolled in preferred provider organizations (PPOs), which generally use a network of doctors and providers who work on a fee-for-service basis but offer a discount to plan members. Enrollees in these plans are permitted to go to providers outside the network but generally must pay a higher share of the cost. Another 20 percent of covered workers are in health maintenance organizations (HMOs). The rest are in a variety of other plans.

What’s the cost of employer-based health insurance?

In 2009, the average cost of employer-based health insurance is $13,375 for a family, which is a 5 percent increase over 2008, the Kaiser survey found. The cost of an individual plan remained steady at $4,824. On average, workers’ contributions were $3,515 for family coverage and $779 for an individual policy.

But the workers’ share of premiums varies considerably, with few people paying nothing and many contributing more than 25 percent of the cost.

Deductibles have also been rising sharply. Among smaller firms, where the rate of increase has been greatest, 40 percent require deductibles of at least $1,000. That’s twice as many as only two years ago.

How will the overhaul proposals affect work-based insurance?

All of the Democratic proposals would require individuals to have insurance. Those without health insurance would be required to pay a fine, unless it would be an economic hardship. The House bill and the Senate Health, Education, Labor and Pensions Committee require employers above a certain size to offer coverage to workers. If they do not provide that coverage, the employers must pay a penalty. The Senate Finance Committee bill would not require employers to offer coverage, but would require employers with 50 or more workers to reimburse the government if their employees used government help to buy coverage.

Lawmakers are considering ways to help small businesses pay for coverage. For example, the Senate Finance bill would offer tax credits to firms with 25 or fewer workers that help pay for health insurance coverage. In addition, legislation being debated would create insurance “exchanges” that would offer competing plans, an effort to keep the price of policies down.

To pay for the cost of extending coverage to more Americans through expanding Medicaid, the state-federal program for the poor, and giving subsidies to people whose employer doesn’t have a plan, many in Congress would like to tax the most expensive insurance policies — often described as “Cadillac” coverage. Right now, policies are exempt from income taxes. Government studies have suggested that taxing employer-provided health benefits could raise an estimated $246 billion.

Sources:

The Alliance for Health Reform

Employee Benefit Research Institute

Kaiser Family Foundation: Side-by-Side Comparison of Major Health Care Reform Proposals

Employer Health Benefits 2009 Annual Survey