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How Does Health Insurance Work Through An Employer

In the United States, health insurance is commonly tied to employment. In March 2021, the U.S. Bureau of Labor Statistics (BLS) collected data showing that 70% of private-industry workers and 89% of government workers had access to employer-sponsored health care benefits.

Before the Affordable Care Act (ACA) established the Health Insurance Marketplace, most people could access affordable health insurance only through employment. Today, you have more options.

One of the reasons you may want to take advantage of your employer’s health insurance plan is savings. Most employers share a significant part of the premium cost. The BLS reports that private-industry employers share 78% of the cost. State and local government employers pay 86% of the cost.

Under the ACA, companies with 50 or more full-time or full-time equivalent employees must offer some level of health insurance to at least 95% of their staff. If a company does not comply, the IRS will impose a penalty. 

HMO versus PPO

Your company may offer a choice of health insurance plans. The primary types of health insurance are:

  • Health Maintenance Organization (HMO)
  • Preferred Provider Organization (PPO)

The main distinctions between the HMO and PPO are flexibility and cost:

  • HMO plans can control costs and pass the savings onto their members by closely linking benefits to a provider network.
  • PPOs generally have a more extensive network and some level of flexibility in network utilization if you are willing to pay higher out-of-pocket costs.

High-deductible health plan (HDHP)

If your company offers a high-deductible plan, you may be able to open a Health Savings Account (HSA). An HSA can help you manage your medical expenses as you work toward meeting your deductible. Your insurance company should provide you with a list of HSA-eligible medical expenses.

You make HSA deposits through pre-tax payroll deductions. Withdrawals for eligible medical costs are tax-free. Using a debit card linked to your HSA account, you pay the provider directly for health care products or services that are HSA-eligible.

Some companies offer a flexible spending account (FSA). The concept is similar to the HSA. One significant difference is that your employer owns the FSA account, so you relinquish the funds if you leave the company. The HSA is portable.  

Open Enrollment

Once you choose a plan, submit the completed enrollment application as instructed by your employer. The typical way companies collect health insurance premiums is through automatic payroll deductions. 

During open enrollment, you should not need to provide information about your health history or previous health conditions. If you delay, you may have to provide health information, pay a higher premium and be subject to a waiting period for pre-existing conditions.

Companies usually hold an open enrollment period every year. Typically, the human resources department announces the open enrollment window well in advance to give employees time to read all the updates and make any changes. Your company may require you to complete new forms even if you don’t make changes, so be sure to follow your employer’s instructions.

Insurance after employment ends

Generally, once you terminate employment, your benefits end unless you have some special arrangements with the company. With your benefits ending, you can plan to:

  • Sign up for coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA), which extends your benefits for a defined time frame with the full premium at your expense.
  • Enroll in your next employer’s health insurance plan.
  • Apply for a plan through the Health Insurance Marketplace in your state.

Try to avoid any gap in insurance coverage. Continuous coverage is important for good health and makes it easier to pick up a new plan.