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“How much should we contribute toward employee health insurance?”
It's one of the most common questions employers ask when evaluating their benefits.
The frustrating answer is: it depends.
For one employer, paying 100% of the employee-only premium may make sense. Another may contribute 75%. Another may pay a fixed dollar amount and allow employees to choose among several medical plans.
The goal isn't necessarily to contribute the most an employer can afford today. It's to find an amount that keeps coverage affordable and competitive for employees while remaining financially sustainable for the business as healthcare costs continue to rise.
Start With the Carrier Requirements
Before deciding what you want to contribute as a business, you may need to consider whether there is a minimum amount the insurance carrier requires.
Requirements vary by carrier, group size, and sometimes the plans being offered. A carrier may require an employer to contribute 50% or 75% of the employee-only premium. In some situations, particularly with very small groups, the requirement may be higher.
Carrier minimums provide a starting point.
They don't necessarily tell an employer what they should contribute.
What Can the Business Sustain?
It's easy to look at today's premium and decide the company can afford to pay 100% of the employee cost.
The harder question is:
Can we still afford that contribution three or five years from now?
If an employee-only premium is $700 per month and the employer pays 100%, that's $8,400 per year for one enrolled employee. A 10% renewal increases that to $9,240—and another 10% increase pushes the annual cost above $10,000.
Multiply that across an entire workforce and a contribution strategy that was comfortable a few years ago can quickly become a significant expense. With many employers experiencing double-digit premium increases year after year, it's important to think beyond what the company can afford today.
Changing course later can be difficult—not just financially, but from an employee relations perspective. Once an employer pays 100% of the premium, employees are likely to view fully paid coverage as part of their compensation package. If rising costs eventually force the company to reduce its contribution, employees may see the change as a reduction in benefits—even if the employer is still paying a substantial portion of the cost.
That doesn't mean employers shouldn't pay 100% when the budget allows. It means today's contribution decision should account for what the company can reasonably sustain in future years. A contribution strategy that's both competitive and sustainable can be easier to maintain than a more generous benefit that eventually has to be scaled back.
What About Dependents?
This is often where the numbers get significantly larger.
An employer may pay a substantial portion—or even 100%—of employee-only coverage without contributing the same amount toward spouses and children.
Other employers contribute toward dependent coverage because family affordability is an important part of their recruiting and retention strategy.
An employer might contribute only toward employees, pay a small percentage or fixed amount toward dependents, or cover the full cost of family coverage.
The right answer depends heavily on the workforce and the market. For some companies, contributing toward family coverage can be an important competitive advantage. For others, those dollars may provide more value elsewhere in the benefits package.
Is it Fair to Contribute to Dependents?
Employers may also want to consider equity across the workforce. A generous contribution toward dependent coverage can provide significant value to employees with spouses or children enrolled in the plan, while employees without covered dependents don't receive that same additional employer contribution.
That doesn't necessarily make the strategy unfair—many employee benefits provide different value depending on an employee's life circumstances. But employers should consider how dependent contributions fit within their overall compensation philosophy and whether the approach feels equitable across the workforce.
Don't Ignore Employee Affordability
Employer contribution strategy isn't only about what the company can afford.
It's also about what employees can afford.
Paying 50% sounds substantial. But 50% of a $1,000 monthly employee premium still leaves the employee paying $500 per month.
For some workforces, that's manageable. For others, it may put coverage out of reach.
There may also be a legal requirement to consider. Employers that average at least 50 full-time and full-time-equivalent employees during the prior calendar year are generally considered Applicable Large Employers (ALEs) under the Affordable Care Act.
ALEs should evaluate whether their medical plan meets the ACA's affordability requirements. For plan years beginning in 2026, the employee's required contribution for the applicable self-only coverage generally cannot exceed 9.96% of household income. Because employers typically don't know household income, the ACA provides safe-harbor methods employers can use to determine affordability.
Even employers that aren't subject to the ACA employer mandate should consider whether employees can realistically afford the coverage they're offering.
The Market Matters Too
Benefits don't exist in a vacuum. Employees compare their compensation and benefits with what other employers are offering.
If competitors in your industry routinely pay 100% of employee medical premiums, contributing the carrier minimum may make recruiting more difficult. On the other hand, you don't necessarily need to match another company's contribution dollar-for-dollar if your overall compensation and benefits package provides strong value in other ways.
Employers can also structure different contribution levels for different classes of employees. Depending on the plan and carrier rules, distinctions may be made using bona fide employment-based classifications. These classifications should reflect legitimate employment practices.
Bona fide employment-based classifications might include: full-time versus part-time employee status; different geographic location; membership in a collective bargaining unit; date of hire or length of service; or differing occupations. 1
Classes can provide employers with additional flexibility when designing benefits or competing for talent, but they should be established intentionally. For example, promising to pay 100% of medical coverage for a particular new hire may create issues if similarly situated employees receive a different contribution. Before making a special benefits commitment as part of an employment offer, employers should confirm that the arrangement fits within the plan's established classes, carrier requirements, plan documents, and applicable nondiscrimination rules.
So while “What percentage should we pay?” sounds like a simple question, the better question may be:
“What contribution strategy allows us to remain competitive, treat employees appropriately, and provide benefits we can sustainably afford?”
So, How Much Should You Contribute?
The most generous contribution isn't automatically the best benefits strategy. Every dollar spent on medical premiums is a dollar that can't be spent elsewhere—on wages, dependent coverage, retirement contributions, dental and vision benefits, paid time off, or other programs employees value.
Benefits have to work for employees. They also have to work for the business. There isn't a universal percentage.
Instead, consider:
- What does the carrier require?
- What can the company sustainably afford, long term?
- What will employees pay?
- Does the company need to meet ACA affordability requirements?
- How important is dependent contribution?
- What are competing employers offering?
- How will future premium increases affect the budget?
- Would a fixed-dollar or base-plan contribution provide greater stability?
The answer may change as the company grows, the workforce changes, or healthcare costs increase.
That's why employer contributions shouldn't simply be carried forward every year because “that's what we've always paid.”
The goal isn't to contribute the most or the least. It's to find a balance that provides meaningful, affordable coverage for employees while remaining sustainable for the organization.
Whatever contribution strategy you chooses, communication matters.
Employees don't always realize how much their employer is paying toward their health insurance—especially when the company covers 100% of the premium. When there is no deduction coming out of an employee's paycheck, it can be easy to overlook just how valuable that benefit actually is to their overall compensation package.
Employers can reinforce that value through year-round benefits education, clearly communicating the employer-paid portion of coverage, and providing total compensation statements that show the full investment being made beyond an employee's salary.
A generous benefits package is valuable. But employees are much more likely to appreciate that investment when they understand what it costs, what the employer is contributing, and how to make the most of the coverage they're receiving.
At Royal Benefits, we help employers evaluate contribution strategies alongside employee communication, plan design, employee affordability, market competitiveness, and long-term costs—building a benefits strategy employees value and the business can continue to support.
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