How Much of the Average Paycheck Gets Deducted for Health Insurance?

Review your workplace health plans to find the best option.

Review your workplace health plans to find the best option.

If your employer provides health insurance, count yourself lucky. Nearly 115 million adults and about 38 million children had health insurance through an employer in 2011, according to Georgetown University Health Institute. But those numbers were down 6 percent since 2001, and employee contributions almost doubled over that 10-year span. The average amount you might pay for health insurance depends on the carrier and plan type and your employer's contribution.

Average Cost

Based on the Milliman Medical Index, the average family of four is expected to pay $9,144 a year in health insurance premiums and out-of-pocket expenses, as of 2013, according to U.S. News & World Report. That's an increase of 7.2 percent from 2012. An employee's total premiums are expected to cost $5,544 a year, but this amount includes employer contributions. "Family of four" means two adults and two children participating in an employer's preferred provider organization plan, the most frequently used type of group coverage. For an individual policy, workers paid an average of $5,615 in 2012, according to the news website Philly.com.

Paycheck Deduction

Your employer doesn't have to pay any of your health insurance cost unless a collective-bargaining agreement says to. But in most cases, companies pay 50 to 80 percent of the plan cost and most employees shell out only a quarter of that cost, Philly.com says. If your employer pays part of the cost, you must know that amount to figure your exact payroll deduction. Let's say you’re paid weekly, your employer covers 80 percent of the cost and your premiums total $5,544 for the year. Multiply $5,544 by 80 percent to get $4435.20, which is your employer's cost. This reduces your monthly payroll deductions to $1,108.80. Divide $1,108.80 by the number of weekly pay periods in the month to get your payroll deduction amount.

Taxes

While health insurance costs for employees have steadily increased, the upside is you likely don't pay taxes on your payroll deductions. Most employers offer health insurance through Section 125, or cafeteria plans, which allow workers to pay their premiums with pretax money. In this case, your employer doesn't deduct income taxes or Social Security and Medicare taxes from your premiums. This lowers your taxable wages and results in a higher net pay than if you had to pay taxes on your premiums. While your employer must report the cost of the plan on your yearly W-2, it doesn't include your pretax payments in your taxable wages. The downside is that those taxable wages are not reported to the Social Security Administration, so they don't count toward those benefits.

Considerations

Because health insurance plan prices and the cost an employer is willing shoulder vary, your payroll deductions may differ from national averages. If necessary, ask your human resources or payroll department for a detailed explanation of your health insurance payroll deductions.

 

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