You might be under the impression that insurance offered through the Affordable Care Act (ACA) marketplace is significantly more expensive than the insurance offered through an employer. Nearly half of people with health insurance get it through work. However, a study conducted by the Urban Institute found that some silver plans cost 10 percent less than a comparable employer plan. And while employers do tend to pick up the bulk of the tab for their employees’ health plans, you may not always come out ahead. Before deciding whether to accept a health insurance offer from your employer or to choose one from the private market, here’s what you need to know.
Open Enrollment
First, if you’re considering switching from employer-based to marketplace-based insurance, you need to do so during the open enrollment period. For the 2018 enrollment period, you have from November 1 through December 15, 2017 to sign up. Once open enrollment is over, you can only purchase a private plan if there is a life-changing event, like a move, divorce, marriage or new baby. Many companies also have specific enrollment periods, so it’s important to check before you decide to change to a different type of policy. In addition, if you’ve already signed up for insurance under your employer, you may be required to keep that policy in place until the next enrollment period.
Subsidized Premiums and Taxes
Most employers pay a portion of the health insurance premiums that are offered to their employees. The ACA requires employers to pay at least 50 percent of the premium in order to take the tax credit for offering insurance. Smaller companies that don’t use the tax credit may cover a lower percentage of the premiums. Employers that do use the tax credit allow you to pay your portion of the premium before taxes. This reduces the amount of taxes deducted from your paycheck, giving you more spendable income.
If you choose an ACA plan, you cannot pay with pre-tax dollars. If the policy offered to you by your employer meets minimum value standards, you also cannot receive a subsidy on coverage even if you qualify based on income. In most cases, your employer plan will be cheaper and provide better coverage than a marketplace option.
No Employee Contribution
There are always exceptions to the rule, of course. One reason you may want to investigate a marketplace plan is if your employer does not pay a portion of your premiums. This means that you’re paying the full cost of your health insurance anyway but are required to accept whatever plan your employer offers at that price. In this instance, you may find a plan on the marketplace that provides better coverage at a lower cost if you do some comparison shopping.
Under the ACA, employer-provided health insurance is considered affordable if it costs no more than 9.69 percent of your annual household income for the employee alone. That means that premiums for the entire family can legally be higher than 9.69 percent of your income and you will still be unable to qualify for subsidies in the marketplace. However, if your employer-based policy is too expensive (even if it’s technically “affordable”), you may find a better plan on or off the marketplace.
Costly Employer Plans
Employer plans must meet certain requirements under the ACA. They have to cover at least 60 percent of medical expenses for the standard population, for one thing. According to the Kaiser Family Foundation, the average premium cost in the United States is $6,101 per year and employers pay, on average, $4,776, which is approximately 78 percent of the total cost of premiums. That means you could be required to pay up to 40 percent of your expenses, which can add up over time.
It is possible you could find a plan with better coverage in the marketplace with a lower monthly premium. But unless you can prove that the insurance offered by your employer doesn’t meet minimum value requirements or that it is too expensive, you will be unable to qualify for tax credits or subsidies.
Possible Job Loss
If you have reason to believe that you will become unemployed before the next enrollment period, you may want to consider a marketplace plan. Under federal law, if you are terminated or laid off, your employer is required to offer you COBRA coverage. This means you will be offered similar insurance to what you had when you were working, but will pay the entire premium on your own as your employer does not have to subsidize the costs under COBRA. Experts say that you may find a better option through the marketplace because COBRA coverage is often extremely expensive.
Keep in mind, though, that if you lose your insurance due to job loss, it qualifies as a special life event, and you’ll get a chance to sign up for health insurance during a special enrollment period anyway.
Comparing Benefits
It’s important to remember that face value should not be the only factor you use in determining the best health coverage for your family. Look carefully at the benefits offered by the policies you’re considering, in and off the marketplace as well as through your employer. Be sure to consider the tax savings you’ll realize if your employer deducts premiums pre-tax as well as how much your employer contributes to your premium costs. In most cases, you will probably find that your employer-provided health insurance options are the best choice, both in cost and the benefits offered.
But if you’re young, healthy and don’t have any dependents to cover, you may find a more valuable plan in the private marketplace. Most employers provide good coverage at competitive rates, but that’s not guaranteed. And if your work-based plan doesn’t cover providers you like or medications you need, then you may also need to shop around.
Employer Penalties
Employers can be penalized if they offer health insurance with too high of a price tag. The smaller the number of employees who sign up for health insurance, the higher the rates can be. Therefore, your employer has a reason to want employees to sign up for their plan. In addition, insurance companies want healthy, young people to sign up for health insurance to offset the cost of those who are older or already being treated for pre-existing conditions. That means that insurance companies and employers have a vested interest in providing affordable, comprehensive policies that employees will want to purchase.
If you’re offered insurance through your employer, you’re not required to purchase it. You do have the option of purchasing insurance through the ACA marketplace or another private venue. However, if your employer pays a portion of your premiums and allows you to deduct your portion before taxes, you may be better off choosing the employer’s policy. Bottom line: Don’t assume that your job-based coverage is the best option for you. It might be, but it doesn’t hurt to shop around first to make sure.
