Is it always cheapest to buy health insurance through work or private?

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Getting health insurance through your employer is usually cheaper than buying your own private plan because employers subsidize premium payments. However, there are exceptions.

Is it better to get health insurance through work or should you buy your own individual plan? Employer-sponsored health insurance is usually cheaper than an individual health plan — but there are exceptions. Read our full guide to determine when it’s best to shop for your own coverage — and when to stick with your employer’s offer.

Is it cheaper to buy your own health insurance?

Employer-sponsored health plans are often cheaper because companies help pay for your health coverage and medical expenses. Federal law demands that companies with more than 50 employees must pay at least 60% of health insurance premiums. Businesses usually exceed that percentage.

An individual plan market is typically more costly than an employer-sponsored plan. The average annual insurance company premium for an employer health insurance plan is $1,669 for single coverage, according to the Kaiser Family Foundation (KFF). Compare that to the individual market, which has an average individual premium of more than $5,000 annually. Family coverage often costs even more — with monthly premiums exceeding double the cost of single coverage.

There are, as mentioned, exceptions. People whose household income is less than 400% of the federal poverty limit receive subsidies from the federal government if they buy a health plan on the Affordable Care Act (ACA) exchange. Those subsidies come in the form of premium tax credits, which reduce the costs of health insurance plans in the ACA marketplace.

The American Rescue Plan in 2021 also expanded those subsidies for two years to all Americans with marketplace plans. In that case, you might be able to find a cheaper health insurance marketplace plan than an employer-sponsored plan. Otherwise, individual insurance will cost you more than a workplace plan.

Employer-sponsored health insurance vs. private coverage

When deciding between private health insurance or your employer’s plan, you’ll find that employer-sponsored health insurance limits your health plan options. Your job might offer only one plan, although some companies offer a few options.

Meanwhile, individual coverage in your area may let you choose between multiple insurance companies and health plans. So, you’ll likely find better rates with your employer’s insurance, but your options are more limited than the individual market.

Additionally, an employer-sponsored health insurance plan may offer other health benefits and perks, such as employers contributing to health care savings accounts (HSAs). HSAs are connected to high-deductible health plans and let members save for future health care costs. Employers can also contribute money to HSAs.

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How does health insurance work through an employer?

Coverage is typically available after the first month you start working. However, many employers have an enrollment period for coverage, such as 30 to 60 days after your job’s start date.

If you miss the enrollment period, you’ll need to wait for the following year’s window to get coverage. You’ll also need to wait for the next enrollment period to make any changes to your plan, unless you experience a major life event that requires you update your plan such going through a divorce or welcoming a new child into the family.

Employers typically deduct your part of the health insurance premiums from your paychecks.

Advantages and disadvantages of employer-sponsored insurance

There are a few pros and cons to consider if you are trying to decide between employer-sponsored health insurance or buying your own private plan.

Pros:

A large portion of the policy’s premiums are paid by the employer
Coverage is often cheaper than an individual plan
The employer manages the insurance plan
Premiums can be deducted from your paycheck
Contributions lower your taxable income

Cons:

Plan options are limited to what the employer offers
You may only be able to enroll or make changes during certain periods of time
An employer isn’t required to split the cost of the premiums for your spouse and dependents health care (although they often will)

Do you have to enroll in insurance from your employer?

Employer health insurance plans aren’t mandatory but they are worth taking advantage of. Because of the Affordable Care Act, large companies of 50 or more are required to offer it and pay for at least 60% of the premiums. Employees are capped at paying for monthly premiums of 9.78% or less of your household’s income. However, the 9.78% cap doesn’t apply to your spouse and dependents, which may price out employer-sponsored coverage.

If you decide against employer health insurance, you can get your own private plan.

Should I get health insurance through work?

Employer-sponsored health insurance coverage is usually cheaper than buying your own private plan since your employer must cover at least 60% of the cost. But if they don’t cover your dependents, paying out-of-pocket for their premiums can be very costly.

If your employer would require you to cover your dependents’ health insurance premiums yourself, you may consider shopping around for a private health insurance plan, such as a high-deductible plan with an HSA. If you’re on a tight budget, you may also consider Medicaid or Medicare. The government-sponsored options are typically cheaper than private coverage and health insurance offered through work. If you’re eligible for Medicare or Medicaid, you should see how much money you’d save by enrolling into either.

If you’re still unsure which path to choose, consult with an independent insurance agent or broker who can help you identify your best options.

Sources:

Kaiser Family Foundation (KFF). “Average Annual Deductible per Enrolled Employee in Employer-Based Health Insurance for Single and Family Coverage.” Accessed July 2022.

Cynthia Bowman

Contributing Researcher

Cynthia Paez Bowman is a personal finance writer with degrees from American University in International Business and Journalism. Her work has been featured in MSN, Brex, Bankrate, Freshome, The Simple Dollar, GOBankingRates, and more. Cynthia is based between Las Vegas and Europe. In her spare time, she travels throughout Africa and the Middle East helping women entrepreneurs develop and grow their businesses.