Employer-Sponsored Health Insurance 101 | KFF

Employer-sponsored health insurance (ESI) is the largest source of health coverage for non-elderly U.S. residents. Unlike many other nations, the U.S. relies on voluntary, private health insurance as the primary source of coverage for residents who are not elderly, poor or disabled. Providing health insurance through workplaces is an efficient way of offering coverage options to working families, and the tax benefits of employer-based coverage further enhance its attractiveness. Yet, ESI often results in uneven coverage, especially for those with low wages or those working at smaller firms. Overall, 60.4% of people under age 65, or about 164.7 million people, had employment-sponsored health insurance in 2023. The level of coverage varies significantly with income and other factors, even among working families.

The drafters of the ACA intended to provide coverage options to those without access to employer-sponsored coverage without encouraging employers to drop coverage. To achieve this balance, the ACA requires that employers with at least 50 FTEs offer health benefits which meet minimum standards for value and affordability or pay a penalty. The so-called ‘employer mandate’ constitutes two separate penalties.

First, employers are taxed if they do not offer minimum essential coverage to 95% of their full-time employees and their dependent children. This generally requires that employers offer major-medical coverage and not a limited benefit plan. Employers face this penalty when at least one of their employees receives an advance premium tax credit (APTC) to purchase coverage on the health insurance exchange markets or Marketplaces. In 2024, this penalty stipulates that employers will be assessed a tax of $2,970 for each full-time employee after their first 30 employees.

Secondly, employers are penalized if the coverage they offer is not affordable or does not provide minimum value. Plans are considered to meet the minimum value standard if they cover 60% of the health spending of a typical population. In 2023, coverage was deemed to be affordable if the employee premium contribution is less than or equal to 9.12% of their household income. Employers may be charged $3,750 for each employee enrolling on subsidized Marketplace coverage.   

Defining what constitutes ‘affordable’ has been the focus of considerable attention in recent years. The Obama Administration initially issued rules that workers and their dependents would be considered to have an affordable offer if self-only coverage met the affordability test. With many employers requiring much larger premium contributions to enroll dependents, this meant that as many as 5.1 million people were in households where they had to pay a larger share of their income to enroll in the plan offered by their employers without being eligible for premium tax credits. Recent rules have addressed the so-called “family glitch” by considering the cost of family coverage when assessing affordability. While most large employers offer health benefits, many may encourage spouses and other dependents to enroll in different plans if possible. For more information on eligibility for premium credits, see the Affordable Care Act chapter.

Among firms with three or more workers, just over half (53%) offered health benefits to at least some of their workers in 2023. Firm offer rates differed significantly with firm size. Only 39% of firms with three to nine workers offered health benefits, while virtually all (98%) firms with at least 200 employees did so. While a large majority of firms are small, 83% of firms with three or more employees have fewer than 25 employees, and these firms employ just 16% of workers. Sixty-four percent of workers work for firms with 200 or more employees, where the employer offer rate is almost 100%.

Among firms offering health benefits, 13% of firms with fewer than 200 workers and 26% of larger firms offered health benefits to part-time workers in 2023.

Ninety-five percent of firms offering health benefits offered them to dependents (e.g. spouses and children) of their workers. In 2023, among firms with 200 or more workers offering health benefits, 32% offered benefits to opposite-sex domestic partners and 38% offered benefits to same-sex domestic partners. Many small firms reported that they had not encountered this issue or that they did not know.

While ESI seems likely to remain the dominant source of health insurance for working families, employers and working families each face challenges relating to affordability and access to care. These include: 

Ultimately, health care is expensive, and the cost of good ESI coverage can place a strain on employers and employees, particularly for workers with lower wages. Additionally, only about half of workers with incomes below 200% of the FPL are even eligible for ESI at their workplace. Can ESI be a source of affordable coverage for all working families, or are novel approaches to providing affordable coverage options needed for these families? 

Many ESI policies have significant deductibles and other out-of-pocket costs to keep the premium costs down, while increasing the cost of obtaining care for enrollees. Can and will employers continue to increase out-of-pocket costs, and, if not, how will they control the costs of ESI going forward? 

What avenues are available to employers to increase access to care for people with mental health and substance use care needs? Is telehealth a sufficient response? 

Can employers and health plans develop provider networks that provide quality health care at lower costs? 

This chapter was prepared by Gary Claxton, Matthew Rae, and Aubrey Winger and draws on existing KFF products.

Claxton, G., Rae, M., & Winger, A., Employer-Sponsored Health Insurance 101. In Altman, Drew (Editor), Health Policy 101, (KFF, May 28, 2024) https://www.kff.org/health-policy-101-employer-sponsored-health-insurance/ (date accessed).