What are employer-sponsored health care benefits?
You might have benefits from your employer or know someone who does. Let's discuss.
Employer-sponsored health care benefits are known by many names: group health plans, group insurance, group health coverage, group insurance policies, etc. No matter what you call them, these are generally the most budget-friendly option for employees. Compared to purchasing your own health insurance, it is a better deal to get your employer’s “group rate” from their insurance company.
Employers are able to pass those cost savings on to you. They offer employees lower costs for health care than what you would often be able to buy on your own. Plus, employers pay for some of the overall cost of their employees’ health care costs, giving you more affordable premiums, and other cost-sharing parts of health insurance such as copays and coinsurance.
It is mandatory for larger companies to provide health coverage for employees. According to federal law, employers must offer health coverage, or face a penalty. If a business has more than 50 full-time equivalent employees, current ACA law requires employers to provide health coverage to its staff; health coverage that meets IRS standards of being “affordable.” But the rule goes both ways—the law requires all individuals to have some form of health coverage year-round or face a penalty at tax time.
Good workplace benefit options attract talent and help retain good employees. Some employers emphasize their health plan’s strong points when recruiting new employees. Often, your employer’s health coverage plan gives you that added incentive to work for that employer and to stay competitive with other employers. Of course, you can choose whether or not to accept the employer’s benefits. Generally you will have that option once a year, during annual open enrollment.
Why is it a big deal?
More than 177 million Americans receive health insurance through an employer.1 More than half of the U.S. non-elderly population is covered by an employer-sponsored health care plan.2
The value of health care benefits is undeniable. According to a recent survey, 87% of workers report that employment-based health insurance is “extremely important” or “very important” to them.3
All in all, employers pay $668 billion per year to insure employees. 1
Part of your benefits package: health coverage, FSAs, HRAs, and HSAs
It’s a win-win situation. Tax laws allow “pre-tax” savings for both the employee and employer when using pre-tax dollars for health care coverage, FSAs, HRAs, and HSAs.
FSA, HRA, and HSA benefits all have one specific purpose—to save you money on the out-of-pocket expenses you may encounter as part of your health plan. Charges for health care such as copayments, deductibles, and coinsurance are arrangements called “cost-sharing.” The FSA, HRA, and HSA exist to pay for these charges that aren’t already covered by your insurance company.*
*Check your Summary Plan Description or Explanation of Benefits (EOB) from your insurance company to learn about your plan’s cost sharing rules!
Tax savings?...How much?
Using pre-tax dollars to pay for your health insurance, fund a Health FSA or HSA will allow you approximately 30% savings on your payroll taxes.
This means that if you did not take advantage of one of these benefits, your health cost would be more expensive because you would pay taxes based on the gross dollar amount of your paycheck (before deductions), and later pay for health costs from your take-home pay.
But, if you used one of these benefits through pre-tax payroll deductions, you would pay taxes on a smaller amount, and therefore pay fewer taxes (about 30%).
The HRA is a little different – it’s almost like “free money.” An HRA is employer money given to you tax-free (not reported as income) as a reimbursement for proof of qualified out-of-pocket medical expenses you had.
Too good to be true? Free money from your employer to help pay your medical bills is just another nice perk of employer benefits being tax-free.
What would happen if benefits from employers went away?
Some lawmakers believe that if the tax-free status of benefits went away, employers would raise employee wages to make up for the reduced health benefits. But that is not likely to happen. A survey of employers shows that a majority of employers would not increase wages if this occurred.4
In 2017 there have been several newly proposed health care bills to repeal or replace the ACA (Obamacare). There have been discussions among think tanks and lawmakers to add additional income and payroll taxes on employees and employers.1 Congress members might introduce legislation or tax reform that takes away the tax exclusion for employers who provide health coverage.
Existing tax law allows employees to be covered on employer provided health benefits without any income or payroll taxes on what the employer contributes towards the health insurance. Employers are allowed to deduct their expenses for employer provided health care. If the ACA were repealed, the extra revenue it brings would need to be replaced by something else. Many employers across the country are hoping that the tax-free status of employer-provided health benefits will not be on the chopping block.1 If the tax-free status went away, many employers would not be able to afford to provide the same benefits.
1. Satter, M.Y. (2017, March 23). Employers oppose taxing health care benefits. Retrieved from http://www.benefitspro.com/2017/03/23/employers-oppose-taxing-health-care-benefits
2. Wellness Efforts Need to Address Five Important Risk Factors (2017, February 14). Retrieved from http://healthcaretrendsinstitute.org/wellness-efforts-need-to-address-five-important-risk-factors/
3. Fronstin, P., Greenwald, L. (2017, April 18). Value of Workplace Benefits: Findings from the 2016 Health and Voluntary Workplace Benefits Survey. Retrieved from https://www.ebri.org/pdf/notespdf/EBRI_Notes_v38no5_WBS.18Apr17.pdf
4. Lockton. (n.d.) Businesses Overwhelmingly Oppose Taxing Healthcare Benefits. Retrieved from http://www.lockton.com/Resource_/PageResource/MKT/Compliance/HRAP_Survey_Results_flyer.pdf
Learn more about your FSA: BESTflex Plan Help
Learn more about your HSA: SimplyHSA Plan Help
Learn more about your HRA: EBC HRA Help
Learn more about your Benefits Card: Benefits Card Help