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Summary: Health insurance is insurance that protects the insured from paying the full cost of medical treatments and services.
Health Insurance
Health insurance is insurance that protects the insured from paying the full cost of medical treatments and services.
This is also known as health coverage or health benefits. For employees, health insurance may take the form of public social insurance programs or private health insurance provided by employers. In countries like the US, where private, employer-sponsored health insurance is the norm, the employer typically pays the majority of the insurance premiums, and the employee makes a lesser contribution. Healthcare is also normally offered to cover the employee’s immediate family, including spouses and children.
In addition to medical insurance, health insurance also includes disability insurance (DI) and long-term care (LTC) insurance. DI pays benefits to people who are unable to work because of accidents or injuries that cause disabilities. LTC insurance pays benefits to individuals who lose their ability to function and require long-term care due to age, illnesses, or accidents.
When an insured person is ill or injured, they can visit clinics and hospitals to receive necessary medical treatment. There, the healthcare provider coordinates payments with their insurance provider. The insured typically pays a deductible or an excess and an initial contribution, and then the insurance provider pays for the rest of their treatment according to the details of their policy.
What health insurance is available for companies to offer to their employees?
Employers typically buy group health insurance plans for their employees, except in instances where unions buy the plans instead. The Federal Employees Health Benefits Program covers federal employees.
The types of group health insurance plans available include:
- High-deductible health plan (HDHP): HDHP plans generally have the lowest premiums but have high deductibles and copays. Employers may support employees by offering them health savings accounts (HSAs) that help them pay deductibles when needed.
- Health maintenance organization (HMO): An HMO plan provides coverage only for treatment provided by hospitals and doctors who contract with the insurance company. Outside specialists and procedures are only covered in emergencies. HMO plans usually have more affordable premiums but require fixed copays for doctor visits.
- Point of service (POS): POS plans have higher premiums than HMOs but have greater flexibility. They allow the insured to use doctors and hospitals outside of their networks. However, these visits have higher copays and require referrals from the insured’s primary care physician (PCP).
- Exclusive provider organization (EPO): EPO plans charge higher premiums than HMOs but offers the same flexibility. They generally don’t cover out-of-network treatments and doctor visits. However, their networks are much bigger than HMO networks, reducing the need to go outside their networks.
- Preferred provider organization (PPO): PPO plans have higher premiums but offer more flexibility. They cover doctors and hospitals outside of contracted networks without the need for referrals. However, copays are lower with in-network treatment.
What are the requirements for providing health insurance to employees?
In some countries, public healthcare is free and universal, so employers are not required to supplement it. In other countries without public healthcare, employers may or may not be required to provide health insurance for their employees.
For example, in Canada, healthcare is free and universal, provided to all, and funded by tax revenue.
In the US, in contrast, public healthcare schemes like Medicare and Medicaid provide insurance coverage for only elderly and disabled people or low-income earners, respectively. No federal statute requires that all employers provide health insurance for their employees.
However, the Affordable Care Act dictates that enterprises with over 50 full-time equivalent (FTE) employees must provide access to affordable health insurance, or they will usually be subject to an Employer Shared Responsibility Payment. A full-time employee is defined as anyone who works 30 or more hours a week and at least 120 days per year for a company. “Affordable” health insurance is defined as not costing more than 8.39% of their income in 2024, down from 9.12% in 2023.
Employers also typically provide health insurance for their employees’ immediate family. This means covering spouses and dependent children until the age of 26. Some states also have their own health insurance requirements, including mandatory mental health insurance, for example.
It is very common for employers to provide health insurance in the US. This has grown into a standard employee benefit despite not being required by law for all employers.
Other health-related benefits are required by law in the US, including:
- Social Security: Employers and employees must both make contributions to Social Security, which provides disability coverage when employees are disabled by accidents or illnesses.
- Medicare: Employers and employees both pay contributions to the Medicare system. Medicare can be used by employees over the age of 65 as their main health insurer and also provides coverage for disabilities.
- Worker’s compensation: Employers must also contribute to worker’s compensation schemes that pay benefits to employees who become sick or are injured due to their employment.
- Family and Medical Leave Act (FMLA): The FMLA requires employers of over 50 FTE employees to provide workers with unpaid annual leave of up to 12 weeks. This leave is for the birth and care of a child, care of an immediate family member with a serious health condition, or for the employee’s medical care in case of a serious illness.
What are the benefits of providing health insurance?
Some countries, like Canada and the UK, collect taxes to fund universal healthcare systems that provide free medical services to everyone. However, in countries like the US, where healthcare is not universal, most people, roughly 60% of Americans, get medical insurance through their employment.
At the same time, not all employers offer health insurance to their employees. Those that do, however, may see the following benefits:
- Employee job satisfaction: Employees see employers who offer health insurance as caring more about their health and wellness than employers who don’t. Health insurance that covers both employees and their families can reduce employee stress and help them feel a higher amount of loyalty to their employers. This can help with retaining employees and keeping them engaged with their work.
- Employee well-being: Employees who lack health insurance may put off or avoid treatment for their illnesses and injuries due to a lack of funds. This may cause them undue suffering and worsen their conditions. Providing employees with insurance, however, encourages them to seek out treatment and prevent conditions from worsening.
- Mental health: Many health insurance plans also provide coverage for mental health care. These provisions help employees struggling with stress, burnout, or mental health conditions get the treatment they need, which in turn makes them happier and healthier employees.
- Productivity: Employees who lack health insurance may avoid costly treatment and still come to work sick or hurt for fear of losing income. Rather than treating their illnesses or injuries quickly and effectively, employees may suffer pain and discomfort, which can seriously interfere with their productivity.
If their illnesses are contagious, they also risk spreading them to other employees and impacting the productivity of the rest of their team. With insurance, however, workers can receive treatment faster, miss fewer days of work, and return to normal levels of productivity sooner. - Competitiveness: Jobs that offer health insurance for workers and their families are much more attractive to employees than those that don’t. This is because even if health insurance comes with a lower salary, it is still usually cost-effective for an employee. By buying group policies, employers save on insurance premiums. If an employee had to buy private individual insurance, they would normally pay more than what they lose in salary.
- Tax benefits: Employers can often reap the benefits of providing health insurance for their employees and write off much of the insurance expenses. Health insurance premiums are often deductible from corporate taxes, or employers can give pre-tax dollars to employees to purchase their own insurance.
What are the costs of providing health insurance?
Health insurance isn’t free, even if some of its costs may be tax-deductible for businesses. The employer usually shoulders the majority of the cost of insurance premiums for its employees. In the US, for example, the employer will normally pay 85% of the premium for the employee and 75% for the employee’s family members. The employee pays the rest through deductions from their salary.
The costs of premiums depend heavily on a few factors, such as:
- Age of employees: The average age of your employees can affect the cost of a health insurance plan, which has higher premiums for older employees.
- Number of employees: Larger businesses can buy group health insurance much more affordably than smaller ones because they create bigger pools of insured people to share the risk.
- Coverage: Employers can choose more affordable plans that offer basic coverage or spend more to provide more comprehensive coverage for their employees.
- Deductible: Plans with higher deductibles require employers to pay lower premiums. However, this places more of the burden of cost on the employee.
Andrew (Drew) joined the Remote People team in 2020 and is currently Director, Regulatory Affairs. For the past 13 years, he has been a trusted advisor to C-Suite executives and government ministers on international compliance and regulatory issues. Drew holds a law degree from the University of Otago, a PhD from the University of Sydney, and is an enrolled Barrister and Solicitor of the High Court of New Zealand.
