Employer-Sponsored Health Insurance

The majority of working Americans have "group health insurance" from their employers. This way, the financial risk is spread out over many people - old and young, sick and well.

If you have employer-sponsored insurance, the insurance company doesn't ask about pre-existing conditions or the state of your health - because it's a good bet that, while some people use their healthcare benefits, many others won't or will use it sparingly. So the costs are spread out among a lot of people.

With this system, everyone who's covered and needs healthcare gets it; those who don't need medical care don't access it - but it's there in case of sudden illness or accident. According to the National Coalition on Health Care, more than 80 percent of employees had employer-sponsored health plans in 2005.

Who pays for insurance?

You pay a monthly premium that's taken out of your paycheck. This may or may not cover the full cost. Sometimes your employer will voluntarily pay a portion of your monthly premium to make it more affordable for you. However, this contribution is becoming a problem for small employers because, in recent years, health insurance premiums increased faster than wages and inflation.

It's optional for employers to provide health insurance. Many do though, because it makes them more competitive for hiring and retaining good employees. The only rule is they have to offer it to all employees regardless of their health status.

How group health insurance works

Once a year you sign up during "open enrollment" for a plan offered by your employer. Most of the time you have the option to include your spouse and children up to age 25 if they're still in school. The monthly premiums come out of your paycheck.

Depending on your insurance plan, you may or may not:

• Pay a copay when you see a doctor or go to the hospital
• Have a deductible to meet before your insurance kicks in
• Pay a percentage of the bill, called a coinsurance - for example, 70/30 insurance means your insurance company pays 70 percent of the bill and you pay 30 percent. This kicks in only after you've met your deductible. Until then, you pay 100 percent of the costs - which are then applied to your deductible.

COBRA

If you quit, are fired, or laid off from your job, you lose your group health insurance. However, the government has built in some protection for you, with the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). With COBRA, you can keep your health coverage for a limited amount of time - generally six, 12, 18 months, all the way up a possible 36 months.

But you pay the full premium amount - what you paid and what your employer once paid for you. So it can be more expensive than your group coverage was. It still might be less expensive than individual insurance.

How COBRA works

• When you leave your employer, you make arrangements to pay your monthly premium. When your allotted time is up for COBRA, you'll need to find different insurance - either individual or another group health insurance plan. Watch a short COBRA healthcare video.

The different kinds of group insurance

Select a link below to learn more about each of the available types of employer group insurance plans:

• Health Maintenance Organization (HMO)
• Preferred Provider Organization (PPO)
• Point of Service (POS) or Fee for Service (FFS)
• High Deductible Health Plan (HDHP healthcare video)

Learn more about how individual insurance works.

Watch Healthcare Video: How does health insurance work?