Health Benefits

Health benefits are employer-sponsored programs that help employees cover healthcare expenses, such as medical, dental, vision and other eligible services. They are commonly offered as part of an employee's total compensation package and may include group health insurance, health reimbursement arrangements (HRAs), health savings accounts (HSAs) and flexible spending accounts (FSAs). Offering health benefits can help a business attract talent, retain employees and, in some situations, comply with federal requirements.  

Understanding how health benefits work and the responsibilities involved in offering them can enable employers to make informed decisions when selecting and managing employee benefits. 

What Are Health Benefits?

Health benefits are a category of employee benefits designed to help cover healthcare-related expenses. Unlike benefits such as retirement plans, paid time off, or professional development programs, health benefits focus on supporting employees' medical and wellness needs through insurance coverage and healthcare spending accounts.  

Depending on the employer and the plan selected, costs may be fully funded by the employer or shared between the employer and employee through premium contributions. Many health benefit plans also allow eligible employees to enroll spouses, children, or other qualifying dependents. 

What Types of Health Benefits Do Employers Offer?

Health benefits may include insurance plans, tax-advantaged healthcare accounts and wellness programs. The specific options available vary by employer and the terms of the benefits package. 

• Group health insurance. Covers medical services such as preventive care, doctor visits and hospitalization. Employers typically pay part or all of the premium.
• Dental insurance. Helps with preventive and restorative dental services.
• Vision insurance. Helps pay for eye exams, glasses and contact lenses.
• Health reimbursement arrangement (HRA). Employer-funded account that reimburses eligible medical expenses.
• Health savings account (HSA). Employee-owned, tax-advantaged account available to individuals enrolled in a qualifying high-deductible health plan (HDHP).
• Flexible spending account (FSA). Pre-tax account that employees can fund and use for eligible healthcare expenses during the plan year.
• Mental health and wellness benefits. May include counseling, employee assistance programs (EAPs), wellness initiatives and fitness programs that support employees' overall well-being.

How Do Employer-Sponsored Health Benefits Work?

Employers who want to offer health benefits generally begin by selecting one or more plans to make available to eligible employees. 

Employees typically choose whether to enroll in benefits when they are hired, during the annual open enrollment period or after a qualifying life event, such as marriage or the birth of a child. Depending on the benefit offered, the employer may pay all, part or none of the monthly premium. Employees typically pay any remaining amount through payroll deductions.   

What Are the Legal Requirements for Offering Health Benefits?

Affordable Care Act (ACA) requirements for employer-sponsored health benefits depend largely on the size of an employer's workforce. Employers with fewer than 50 full-time equivalent (FTE) employees generally are not required to offer health coverage under the ACA, although many choose to do so as part of their benefits package.  

Applicable Large Employers (ALEs), those with 50 or more FTEs, are generally required to offer eligible full-time employees and their dependents affordable health coverage that meets the Affordable Care Act's minimum essential coverage (MEC) and minimum value requirements. Employers that do not meet theemployer-shared responsibility provisions under IRC Section 4980H may be subject to employer-shared responsibility payments.  

What is the Difference Between an HRA, HSA and FSA?

HRAs, HSAs and FSAs are tax-advantaged accounts that help employees pay for eligible healthcare expenses. This table shows the differences in who funds them, who owns them and how they can be used. 

HRA vs. HSA vs. FSA 

To sum it up: An HRA is funded and owned by the employer. Employees use it to get reimbursed for eligible medical costs, but cannot take it with them if they leave. An HSA is employee-owned, portable and rolls over year to year, but requires enrollment in a high-deductible health plan (HDHP). An FSA is funded by the employee through pre-tax payroll deductions and unused funds may be forfeited at the end of the plan year. 

Why Do Health Benefits Matter for Small and Medium-Size Businesses?

According to the KFF 2025 Employer Health Benefits Survey, employees consistently rank medical insurance among their most valued workplace offerings. This helps to explain why offering a comprehensive health benefits package may help small and medium-size businesses remain competitive when recruiting and retaining talent.   

Small and medium-size businesses often outsource benefits administration to an HR outsourcing company. When these businesses select a PEO, they may also gain access to big-company benefits that they might not otherwise get. 

How Are Health Benefits Administered?

Managing health benefits is an ongoing HR responsibility for employers. Throughout the year, they may need to: 

• Enroll new hires
• Update benefits records
• Process qualifying life event changes
• Coordinate annual open enrollment
• Select benefit options
• Keep up with changing benefits and employment requirements  

These responsibilities can require significant time and resources. Many small and medium-size businesses use HR outsourcing solutions to simplify enrollment and health benefits administration.  

Administrative services organizations (ASOs) and PEOs can provide administrative support for tasks such as enrollment, eligibility changes, open enrollment and benefits recordkeeping. They also may provide a human resources management system (HRMS) to gives employees convenient digital access to benefits information and processes. 

Frequently Asked Questions About Health Benefits

What is the difference between health benefits and health insurance? 

The difference between health benefits and health insurance is that health insurance is a specific type of health benefit—a financial product that covers a portion of an employee's medical costs.  

"Health benefits" is a broader term that encompasses group health insurance plans as well as HRAs, HSAs, FSAs, dental and vision coverage and wellness programs. Employers may offer any combination of these to support employee health and well-being. 

Are employers required to provide health benefits? 

Federal law requires employers with 50 or more full-time equivalent employees — known as applicable large employers (ALEs) — to offer affordable, minimum essential health coverage or face employer shared responsibility payments under the Affordable Care Act. Businesses with fewer than 50 FTEs are not required to offer health benefits under federal law, though some states impose additional requirements. Voluntary coverage can still be a competitive advantage for smaller employers. 

What does "employer-sponsored" health insurance mean? 

Employer-sponsored health insurance is coverage offered by an employer as part of an employee's compensation package. The employer typically selects the plan, negotiates terms with an insurance carrier and contributes to the cost of premiums on the employee's behalf. Employees may also contribute to premiums on a pre-tax basis through payroll deductions. 

Can small businesses offer the same health benefits as large companies? 

Small and medium-size businesses have access to a range of group health insurance options and benefits programs that can be cost-effective and comprehensive. Working with a professional employer organization (PEO) may give smaller employers access to big-company benefit packages that would otherwise be difficult to offer independently. The specific plans available vary based on workforce size, location and the employer's chosen benefits strategy.