What is an employer-sponsored health insurance?

In the United States, employer-sponsored health insurance, also known as employer-sponsored coverage, refers to health insurance coverage provided by an employer to its employees. The employer typically pays a portion of the premium for the insurance coverage, and the employee may be responsible for paying the remaining portion. Employer-sponsored coverage is a common benefit offered by employers in the US and can include health, dental, and vision coverage.

Employers in the U.S are not legally required to offer healthcare coverage to their employees. However, under the Affordable Care Act (ACA), employers with at least 50 full-time employees – called applicable large employers or ALEs – must provide “affordable” health insurance that provides “minimum value” to 95% of their full-time employees and their dependents.

The penalty for not providing affordable health insurance under the Affordable Care Act is called the Employer Shared Responsibility Payment (ESRP). The ESRP is a fee to the IRS, which is calculated by multiplying a per-employee fee by the number of full-time employees, excluding the first 30 employees. The per-employee fee is adjusted annually and can vary based on the employer’s specific circumstances.

Employer-provided coverage is considered affordable if the employee’s required contribution does not exceed a certain percentage of their household income. In 2023, the percentage is 9.12%. Since employers do not know their employees’ household incomes, they are allowed to use an affordability safe harbor, which includes three different methods of determining affordability. The three affordability safe harbors are the employee’s Form W-2 wages, the employee’s pay rate, and the federal poverty line.

Under the Affordable Care Act, health coverage offered by an employer provides minimum value if it covers at least 60% of the cost of covered services (deductibles, co-pays, and coinsurance) and provides substantial coverage of inpatient hospital services and physician services.

The ACA requires employers to report the cost of coverage under an employer-sponsored group health plan. The reporting is done on W-2 forms and is meant to provide employees with information on the cost of their health care coverage.