A strong health plan is a proven way to attract, engage, and retain employees. During the recruitment process, it is often the difference between a signed offer and a lost candidate. The coverage you offer can have a direct impact on whether the top talent you need accepts your offer and stays with your company.
Employer-sponsored health insurance is one the most highly-valued benefits by employees since it can offer:
- Affordable routine medical care.
- Help when planning for major treatment costs.
- A shield from financial shocks for families.
- Peace of mind for employees.
This guide will give you an overview of all key areas of employer-sponsored health insurance.
What is employer-sponsored health insurance?
Employer-sponsored health insurance is group medical coverage offered by a company to eligible employees, often including spouses and dependents. The employer typically pays a portion of the premium, while employees cover the remainder via payroll deductions. Employees also pay any deductibles, copays, and coinsurance.
For many workers, employer plans are their primary source of health insurance coverage because it gives them access to group plans and their employers cover a portion of the premium. The Affordable Care Act (ACA) strengthened this model by standardizing essential benefits, eliminating preexisting condition exclusions, and establishing offer and affordability rules for larger organizations.
Because premiums are partially employer-funded and often deducted pre-tax, employees usually pay less than they would for comparable individual coverage. Employers benefit from pooled risk, carrier negotiation leverage, and steadier cost trends—while providing an impactful employee benefit that supports long-term retention.
Employer-sponsored vs individual health insurance
Employer-sponsored plans are priced for a group. That spreads risk across the workforce and often reduces the per-member premium cost. Employers also contribute to the premium and may fund health accounts or wellness incentives that offset out-of-pocket expenses. HR departments typically curate a manageable set of insurance options for employees to choose from, and enrollment typically occurs through a benefits portal or other HR system, which simplifies the process. Learn how AdvanStaff’s HR software simplifies enrollment for your staff and your HR team.
Individual health insurance plans are purchased and managed by the consumer. Marketplaces offer a wide menu of choices and, for those who qualify, premium tax credits and cost-sharing reductions can help make coverage affordable. Without subsidies, individual policies often come with higher net premiums. Without the involvement of the employee’s HR team, administrative work shifts to the household, such as making payments and keeping the correct documentation.
Eligibility Note: In some cases, an individual that has access to employer-sponsored insurance may not be eligible for ACA or state-run insurance marketplace options.
In short, the individual market is an important option and the right fit for some families. However, for most full-time employees, employer-sponsored coverage is the better value.
Group plans vs self-insuring
The way an employer funds coverage shapes cost, flexibility, and risk.
Many small employers, and a good number of mid-sized ones, purchase fully insured group plans from a carrier. The company pays a fixed premium, the insurer bears claims risk, and compliance, networks, and member services are bundled. Group size also matters. Small-group plans (commonly 1 to 50 employees and up to 100 in a few states) follow community rating and defined benefit rules. Large-group plans usually allow more customization and pricing that reflects the employer’s actual claims history.
Some larger or growing organizations consider self-insuring, also called self-funding. In this model, the employer pays claims as they occur, and a third-party administrator handles the claims processing. Stop-loss insurance sets a cap on catastrophic exposure. Self-funding can create savings and more control for large organizations. It also introduces volatility and requires strong governance, analytics, and cash-flow discipline.
Level-funded arrangements are a hybrid approach to health insurance that sit between the two. They look like fixed premiums during the year and then reconcile against actual claims, which lets mid-sized employers control costs without taking on a high degree of risk.
The right funding approach depends on workforce stability, leadership’s risk tolerance, access to data, and the quality of partners who can monitor performance and intervene when necessary.
Open-network plans vs. closed-network plans
The design of the health insurance network determines where employees can receive care and what they pay. Open networks usually allow members to see any provider. Closed networks usually limit care to a network of contracted providers (except for emergencies).
Open-network plans
These plans include out-of-network benefits. Members can choose in-network providers for lower costs or go out of network and pay more. Open networks often suit dispersed workforces or employees who want broad access to specialists in multiple regions. The tradeoff is higher premiums and higher costs when care is out of network.
- PPO (Preferred Provider Organization). Members can see any provider. Costs are lowest in-network. Out-of-network care is covered but at higher deductibles and coinsurance. Referrals are typically not required.
- POS (Point of Service) with open-network features. Some POS plans cover out-of-network care. A primary care physician may be required. Referrals are common for specialty care. Out-of-network coverage exists but is limited and more expensive.
Closed-network plans
These plans cover care only within the contracted network (except for emergencies). Members use a defined list of doctors, hospitals, and facilities. Costs are more predictable and premiums are usually lower. Closed networks work well in metro areas with strong provider participation and for employers that prioritize budget control.
- HMO (Health Maintenance Organization). Members choose a primary care physician who coordinates care. Referrals are often required for specialists. Out-of-network services are not covered except for emergencies.
- EPO (Exclusive Provider Organization). Members use the network without needing a primary care physician or referrals in most cases. Out-of-network services are not covered except for emergencies. This design often prices between HMO and PPO options.
When considering which model is best for you, try to match the network model with your workforce needs and local market. Dense urban markets with robust provider networks often favor closed-network HMO or EPO options because they deliver value and predictable costs. Distributed teams or employees with established out-of-area specialists may benefit from an open-network PPO or a POS plan that includes out-of-network coverage. Many employers offer one closed-network value option and one flexible, open-network option so employees can choose the coverage that fits their needs. Concerned about rising health insurance costs? We have tips to help your business minimize premium increases.
When are employers required to offer health benefits?
Under the ACA’s Employer Shared Responsibility provisions (IRC §4980H), Applicable Large Employers (ALEs) must offer affordable, minimum-value coverage to at least 95% of full-time employees and their dependents. Failing to offer coverage, or offering coverage that isn’t affordable or “minimum value” can trigger additional employer costs. The IRS updates affordability thresholds annually and enforces penalties via employer reporting.
State laws can add requirements, notably for benefits mandates and continuation coverage, but the ACA framework is the federal baseline for large-employer obligations. If your business is approaching or already above 50 employees, consult the IRS rules to determine if you are an ALE.
ACA requirements are notoriously complex, particularly the employer responsibilities. If you haven’t already done so, you’ll likely want to read up on the most important aspects of the ACA before you make any big decisions. Need to confirm which health benefits your business is required to provide? Contact us and a member of our team can help!
How to choose the right health insurance plan
Choosing wisely starts with your objectives. Employees want predictable, affordable access to the doctors and treatment they rely upon. Employers want a sustainable spend profile that still supports recruiting and retention. Here’s how each side can approach the decision.
Employers want to balance cost, compliance, and choice
Health plan costs have risen meaningfully in recent years. Family premiums for employer-sponsored coverage are projected to rise, with further upward pressure expected, driven by utilization rebounds, specialty drug spend, and provider labor costs.
Factors that impact the employer directly include:
- Plan funding options. If your organization is growing, consider level-funded or self-funded arrangements with robust stop-loss to capture savings from good claims experience and gain plan design flexibility. For small groups or cost predictability, fully insured may still be best.
- Factors you can control. Engage with your broker or consultants on pharmacy strategies (formularies, biosimilar adoption), steering users to high-value care, and chronic condition management. There are a wide range of options for controlling small-business health insurance costs.
- Timing and length. Choose an open enrollment period that aligns with your plan year and makes administration easy. Many organizations use late fall for calendar-year plans. A two- to four-week window typically gives employees enough time to make decisions without adding unnecessary work for HR teams. Download our open enrollment checklist to learn more about timelines and communications.
- Communication planning. Start early with clear dates and deliverables. State the rules of enrollment. Use a cadence that includes a kickoff, plan comparison materials, and reminders one week and 48 hours before the deadline.
- Providing decision support. Offer plain-language summaries, cost examples, and information on how to look up providers. Make it easy to compare a small set of well-differentiated options. Explain how employees submit documentation, who they contact with questions, and how long changes take to process. Establish clear procedures, because handling employee requests consistently lowers compliance risk.
- Choosing a balanced plan lineup. For instance, offer a value plan (HMO/EPO), a flex plan (PPO), and an HSA-eligible high-deductible health plan. Too many choices can overwhelm your employees, while too few will frustrate those with unique needs. Plan carefully to offer a plan lineup that best fits your employees’ needs.
- Tuning employer contributions schemes. Keep coverage “affordable” under ACA rules for full-time employees to avoid penalties. Use salary-based contributions where appropriate to support lower-wage workers.
- Voluntary benefits. Layer in low-cost voluntary options like accidents, critical illness, hospital indemnity, telemedicine memberships, and supplemental life. These can boost perceived value without at little cost to the employer.
- Partnering with a PEO. Working with a PEO (professional employer organization) can streamline benefits administration, simplify your eligibility and enrollment processes, and administer COBRA. PEOs also support ACA and ERISA compliance. Crucially, they aggregate purchasing for even better group rates and a wider range of plans and voluntary benefits. This is especially valuable for small- to mid-sized employers that want predictable costs. When evaluating PEOs, compare plan access and contribution modeling, service model, compliance support, and data/analytics capabilities.
Advanstaff is a leading PEO with 5 star reviews from hundreds of businesses! Learn more about how we can help you and get a quote from us today!
Employees want to understand all options and the total cost of care
From an employee perspective, choosing health insurance is about fit and the total cost, not just the lowest premium. It’s important to match your employee’s care requirements, provider preferences, risk tolerance, and budget to the plans you choose.
Employees are impacted by a wide range of factors, including:
- Network flexibility and access. For individuals that have already established relationships with specific providers, PPOs and some POS plans may fit better. For those people comfortable staying in-network and who want lower premiums, HMO or EPO options can be the smarter choice. Always encourage employees to verify that the providers they plan to use participate in the plan they choose.
- Tax-advantaged accounts. Health Savings Account (HSA) and Flexible Spending Account (FSA) options have benefits and drawbacks.
- HSAs offer triple tax advantages: pre-tax or tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified expenses.
- FSAs offer pre-tax contributions but are generally “use it or lose it” within the plan year, subject to limited carryover. Use these strategically to reduce your taxable income and build a cushion for care.
- Total cost of care, not just premium. Employees will compare premiums, deductibles, copays, coinsurance, and out-of-pocket maximums. For people who use little care, a lower-premium plan with a higher deductible can be cost-effective, especially if the employer contributes to the HSA. Heavy utilizers may prefer higher premiums in exchange for lower point-of-care costs.
- Coverage specifics. Employees care about benefits for preventive care, primary and specialty visits, urgent and emergency care, hospitalization, mental health and substance use services, maternity, and prescription drugs.
- Reducing out-of-pocket costs. Employees want to limit all of their costs, not just their premium cost. They will consider whether they can stay in-network, schedule preventive appointments, access lower-cost options (such as imaging centers vs. outpatient procedures), or receive mail-order or generic medications.
Employees choose plans based on their personal and family needs, and we have compiled some tips to help employees choose the best health insurance plan for their needs. Employers, on the other hand, must design a portfolio that fits their budget, meets the needs of their diverse employee environment, and remains compliant in a cost and political environment that’s been anything but calm.
For employees: Enrolling in employer-sponsored health insurance
Enrollment happens in two ways: during the annual open enrollment window or after a qualifying life event (QLE) that triggers a special enrollment period.
Open enrollment is an annual period that the employer establishes when eligible employees can enroll, change plans, or add/remove dependents. New hires also have an initial enrollment period that is typically 30 days. Outside these windows, changes require a QLE such as marriage, birth or adoption, loss of other coverage, or certain residence changes. After a QLE, employees generally have at least 30 days to enroll.
Here’s what employees should know and consider when choosing a plan to enroll in:
- Know your windows. Open enrollment is your annual chance to make changes. If you are a new hire, watch for your initial eligibility date and the deadline to enroll. If you experience a QLE, you usually have at least 30 days to act.
- Review last year’s usage. Look at office visits, prescriptions, urgent care, and how close you came to meeting your deductible. This helps you forecast the coming year.
- Confirm networks. Make sure your preferred primary care physician and key specialists are in network, especially if you are switching plan type (from HMO to PPO, for example).
- Compare total cost, not just premium. Add your paycheck premium deductions to your expected out-of-pocket costs. Include any employer HSA or HRA contributions to get a true estimate.
- Use tax-advantaged accounts. If you enroll in an HSA-eligible high-deductible plan, consider contributing to a Health Savings Account. For predictable expenses, utilizing a Flexible Spending Account can lower your taxable income.
- Use preventive care. Many in-network preventive services are covered with no additional costs. Schedule screenings and annual visits to catch issues early.
Navigate employer-sponsored health insurance with ease
Health insurance is a difficult topic for businesses of all sizes and employees at every stage of their career.
For employers, keeping costs manageable while meeting employee needs isn’t simple. Markets shift, regulations change, and new drugs, therapies, and care models emerge. The landscape is different every year.
Health insurance is often stressful for employees too. They may be overwhelmed with information, worried about costs, and concerned by future policy and market changes.
In spite of these challenges, employers can still turn health insurance into a benefit that attracts and engages employees, but it requires deep research, careful planning, and clear communication.