Contributory vs. Non-Contributory Insurance

As parts of their employee benefits packages, many corporations offer group health insurance plans. Companies offer these plans to attract new employees and retain valuable workers. In a contributory insurance plan, employees contribute a portion of group insurance premium. In a non-contributory plan, the employers cover the full costs of the premiums on behalf of the employees. These plans have varying coverage plans, premium payments and deductibles, as well as different benefits and eligibility requirements for participants.

The major advantage to a contributory insurance plan is that employees typically get automatic-issue policies. This means that the employees do not need a medical examination to qualify for most health insurance procedures, as is often the case for individual policies. Also, since both the employees and employers contribute to the premium payments, companies can take advantage of economies of scale to offer employees more comprehensive coverage than they could get on their own.

The primary drawback of a contributory insurance plan is that employees must pay a portion of the plan's premium from their own taxable income. Although these contributions are often smaller than the premiums they would pay with an individual plan, these amounts can affect whether the employee chooses to participate in the group plan. Employees also have limited choices in the amount of each monthly contribution or the amount of coverage they receive under the employer's plan.

Since employers cover 100 percent of the premium payments in the non-contributory plan, employees still get to enjoy some coverage without having anything taken from their paychecks. Non-contributory plans allow low-wage employees to take part in employer-provided health insurance plans at the same level as high-salary workers. For the business owner, the costs in time, paperwork and administration involved in maintaining a non-contributory plan are much lower than for those plans that involve tracking various employee contributions.

One of the most notable disadvantages of non-contributory insurance plans is the limited amount of coverage employees may receive. Without the additional contributions from employees, the premium payments on non-contributory insurance plans are smaller, and therefore the coverage is usually less comprehensive. If the plan includes disability payments, employees will also be responsible for income taxes on those payments. Employees may also be taxed on the premium payments the employer makes on their behalf as part of their taxable income.