Offering health insurance to your employees is a vital way to keep them healthy and satisfied. If you’ve made the decision to provide coverage, you might be wondering, “What percentage of health insurance do employers pay?” In this article, we’ll explore the factors that determine the employer’s contribution and provide you with the latest data on average costs.
Understanding Employer Contributions to Health Insurance
The percentage that employers pay for health insurance can vary based on the size of the company and the type of coverage. There is no one-size-fits-all answer to the question of how much employers pay for health insurance, but there are some average amounts to consider.
Most insurance companies require employers to cover at least half of the employee’s premium. This helps make insurance more affordable for employees. When determining how much to contribute, keep the following factors in mind:
- In some cases, offering employee health insurance may not be mandatory for small businesses.
- Depending on your specific plan, you’ll have more or less flexibility in deciding how much to contribute.
- Including spouses and dependents in the coverage will increase the costs, but it might be necessary for some employees.
- Depending on your contributions, you may qualify for a refundable tax credit.
- It’s important to choose a contribution amount that suits your budget.
Understanding the Requirement to Offer Insurance
The Affordable Care Act (ACA) sets the rules for employer-sponsored health insurance. Whether you are required to provide coverage depends on the size of your business.
If your business has 50 or fewer employees, you are considered a small employer and are not obligated to offer health insurance. However, you can still choose to provide coverage to your employees.
To determine if you fall under the small business category, you need to calculate the number of full-time equivalent employees. This includes both full-time employees and their equivalents based on the average number of hours worked. If the total is 50 or less, you are not required to offer health insurance. If the total exceeds 50, providing insurance is mandatory.
Who Should Employers Cover?
If the ACA requires you to offer health insurance, it must cover all full-time employees. Offering group coverage to any full-time employee means you must offer it to all full-time employees. A full-time employee is defined as someone who works 30 hours or more per week.
While it is not mandatory, offering health insurance to part-time employees is an option. Part-time employees work an average of 20 to 29 hours per week. If you choose to provide coverage to one part-time employee, you must offer it to all part-time employees.
There are certain types of workers, such as independent contractors, seasonal employees, and temporary employees, that employers are not required to cover. For a complete list of exemptions, refer to this guide.
Coverage for Family Members
In group insurance plans, employers often extend coverage to legal spouses and dependent children. The ACA requires employers to provide coverage for dependents up to the age of 26. Failing to do so may result in fines. However, covering dependents over the age of 26 is optional.
Employers are not obligated to pay premiums for dependents, but they can contribute to their premiums if desired. Alternatively, employers can require employees to pay the full cost of premiums for dependents.
Regarding spouses, employers are not required to cover them. Some companies choose not to offer coverage when a spouse can receive insurance from their own employer, or they may charge the employee extra to include the spouse.
Tax Credits for Employer Premium Payments
Small business owners who offer health coverage may be eligible for a small business health insurance tax credit. The percentage of health insurance you pay plays a role in determining whether you qualify for the credit.
To be eligible, you must meet the following requirements:
- Pay premiums under a qualifying settlement (typically at least 50% of the premium).
- Have fewer than 25 full-time equivalent employees.
- Pay average annual wages of less than $50,800 per full-time employee.
- Purchase coverage through the store marketplace.
The maximum credit amount is 50% of your contribution to employee premiums (35% for nonprofits). The credit is available for up to two years.
The size of the tax credit varies based on a sliding scale, with larger credits given to businesses with lower employee salaries.
The store marketplace can estimate your credit and pay it directly to your insurance company, reducing your monthly premium costs. Alternatively, you can receive the full tax credit when filing your taxes.
If the amount of the credit is higher than your tax liability, you will receive a refund for the difference. If you received an advance tax credit and your allowable credit is lower than the estimate, you will need to pay the difference or subtract it from your refund.
Patriot’s online payroll software offers a convenient way to deduct premiums from employees’ paychecks. Take advantage of our free setup and support, and complete your payroll in just three easy steps. Try it for free today!
Note: This article has been updated from its original publication date of November 6, 2017.