©2023 OnPay, Inc.
Insurance offered through OnPay Insurance Agency, LLC (CA License #0L29422)
Updated: November 8, 2023
Health insurance continues to rank as the most important voluntary benefit among employees, making it a powerful tool for employers to attract and retain talent. In fact in 2022, approximately 70% of private-sector employees had access to employer-sponsored medical care benefits, according to the Bureau of Labor Statistics.
One of the most cost-effective ways for employers to provide medical care benefits is through group health insurance. In this guide, we’ll explain what group health insurance is, what benefits it typically provides to employees, and how businesses can secure coverage.
In this guide, we’ll explain what group health insurance is, what benefits it typically provides to employees, and how businesses can secure coverage.
Group health insurance is a type of health insurance coverage offered to members of a group, typically consisting of employees and their eligible family members.
By providing group coverage for their employees, employers can often benefit from group rates as well. These rates are typically shared with employees and are usually lower than individual coverage rates. To learn more, we spoke with OnPay’s Vice President of Insurance, Paul Foery, who has helped businesses navigate the complexities of group health coverage for over 30 years. “This has a lot to do with the purchasing power that comes with larger numbers, because group coverage allows insurers to spread the risk across a larger pool of insured individuals,” he explains. “The results are that it reduces the monthly premium costs for the group.”
So, all eligible employees can participate in the group plan, as you’re taking advantage of the lower premium costs for a group rate.
Now that we understand what group health insurance is, let’s look at some of the most common types.
Here are some common types of group health insurance plans:
“With some HMO’s, you must choose your primary doctor in the network upon enrollment, while with others, you can pick a doctor as you go, as the need for care arises (again, as long as they are in the network).”
— Paul Foery, OnPay's Vice President of Insurance
Group health insurance plans can either be fully insured or self-funded (though a completely self-funded group plan is rare). It’s more common for a company to have a partially self-funded plan in place. We explain more about each below.
Using this option, the employer secures coverage through an insurance carrier, who assumes the risks associated with providing coverage. The carrier also charges the employer an annual premium. Typically, both the employer and its employees are responsible for paying the premium. In a fully insured plan, the employer is not eligible to receive any refund of premium, regardless of claims paid by the carrier during the year.
Simply put, the employer takes on the financial risk of providing health insurance to their employees. This means that the employer pays out-of-pocket claims that are incurred by the company employees rather than paying a total fixed premium to the insurance company.
In some cases, a self-insured employer establishes a special trust fund to hold employer and employee contributions, which are used to cover the cost of incurred claims. However, as we mentioned earlier, this arrangement is rare. It is generally an option for large corporations that have groups with tens of thousands of employees in them. The more common scenario is a business that is partially self-funded.
With this arrangement, employers get access to monthly employee data. “Each month, you can get a report showing what your claims are,” explains Foery. “You’ll see the premium the carrier received for the month; what they paid out in claims, and if there are any excess amounts, you’ll know what those are as well.” If claims are lower than expected, there is a chance that you will get some money back as a refund. For example, you may have a contract in place where you get 50% of your excess premium back. Having this data can also help you make future decisions about your coverage.
Employers with young and healthy employees may find a partially self-insured plan appealing because of the opportunity to have a refunded premium. You’ll receive reports, so you have a better idea of what’s happening each month, and your renewal is not based on the community or group. Now that it is partially self-funded, your renewal is based on your premium versus claims.
“A partially self-insured contract might be a good fit for companies that have a relatively younger group of workers that are in good health,” Foery explains. “That’s because with this option, a business knows there’s a chance that they may get some of their premium back.”
Keep in mind that partially self-funded plans are not something that most employers can take advantage of right away. They require working with an insurance carrier over time. “You usually build up a history with a carrier to get to this point,” Foery explains. They need to evaluate your history. “For example, have you been with one carrier or multiple carriers? How many employees have you had? And they’ll want to know the demographics of your employees — such as date of birth and may even ask for heights and weights.”
Moving on, it’s time to discuss some of the benefits that employees typically have access to.
Broadly speaking, group benefits refer to various forms of insurance that cover a group of individuals, such as employees in an organization.
Group benefits for employees often include:
Keep in mind that group health insurance covers medical expenses incurred by the insured employee or eligible family member. Other types of group insurance, including dental and vision plans, are usually provided separately.
Regarding group health insurance, open enrollment is the period during which employees can:
US employers often hold open enrollment in November or early December, and the process usually lasts between two and four weeks. Employees who miss the open enrollment deadline must wait until the following year’s open enrollment to enroll or make changes to their health insurance benefits, unless they experience a qualifying event.
However, new hires can typically enroll in the company’s health insurance plan based on the employer’s selected waiting period. “The most common situation we see is the first of the month following the date of hire,” says Foery. The next two options that employers tend to use are:
According to this legislation, an employer can choose a waiting period of 30 days, 60 days, or up to 90 days, but it cannot exceed 90 days. Learn more in our guide to the 90-day health insurance waiting period.
It’s important to remember that an employer’s open enrollment deadline for group coverage differs from that of the Health Insurance Marketplace’s open enrollment for individual coverage.
As hinted earlier, group and individual insurance are not the same thing.
In the table below, you can see a breakdown of other common differences between group health insurance and individual health insurance:
Group health insurance | Individual health insurance |
The employer offers the health insurance plan(s) to their employees (and eligible family members) as a voluntary benefit. | The individual shops for and purchases their health insurance plan (e.g., via the Marketplace), which may cover eligible family members as well. |
The employer pays all or some of the employee’s monthly premium. | The individual pays the full monthly premium amount. |
The employer deducts the employee’s premium from their paychecks. | The individual pays their premiums to the insurer, either as a full upfront payment, or via installments. |
The employer provides plan documents to participating employees. | The insurer sends plan documents directly to the insured individual. |
Now that we better understand some of the key differences between individual and group insurance, let’s turn our attention to the pros and cons of offering coverage to employees.
Employers provide group health insurance due to the multiple benefits it offers.
There’s a possibility that this purchase could be eligible for a tax credit outside of SHOP, but that’s a topic that’s best explored between you and your tax advisor. “If you don’t buy it through the SHOP, it could still be a deductible business expense,” says Foery. “But you should consult with your tax professional for any questions about whether or not this is a deductible business expense.”
Here are some examples of situations in which Foery believes a TPA can be especially useful:
Because of COBRA, if in the prior year you are an employer with 20 or more employees and one of them leaves involuntarily due to a layoff (or is dismissed) and not for “gross misconduct,” you likely have to offer continuation of coverage (that the former employee pays for) that lasts for a certain period of time. In most cases, this is 18 months. A TPA can assist with navigating the details of this federal law.
Based on the state (or states) where you do business, there may be continuation laws in place for employers who don’t qualify for COBRA.
Under state continuation, a smaller employer — typically one with 19 or fewer employees — is required to provide health coverage to those who have left their jobs for a set period of time. In most cases, state continuation lasts up to a year. This is another task a TPA can help you with.
Does your company have 50 or more full-time equivalent employees on your staff? If so, you are likely classified as an applicable full-time employer (ALE). This means you’ll need to:
Your TPA can assist with this important “to-do” and help communicate the information to Uncle Sam.
Now that you know the basics of group health insurance, let’s look at what’s involved in obtaining coverage for your employees.
Securing coverage is straightforward after you are familiar with some of the fundamentals.
Keep in mind that each state may have different requirements for the number of employees needed for small- or large-group coverage. What’s more, certain states might allow a self-employed individual (with no employees) to qualify as a “group of one,” making them eligible for small-group coverage.
“Employers will want to know that some states define a small group differently. For example, in California, a group can be two to 99 employees.”
— OnPay's Vice President of Insurance, Paul Foery
An employee averaging at least 30 hours per week is considered full-time and therefore would be eligible for group health insurance.
In a nutshell, large-group employers can acquire coverage directly from insurance carriers, agents, brokers, or online platforms.
Small-group employers have similar options, but for Small Business Health Options, or SHOP plans, it’s a good idea to make sure that their selected agent or broker is registered with SHOP.
We’ve covered a lot of ground, but before we wrap up, we’ll present another type of health option employers might want to learn about.
While group health insurance provides actual medical insurance, health reimbursement arrangements (HRAs) are accounts that are set up by companies to provide reimbursements to employees. Simply put, an HRA is an employer-funded plan that allows employers to reimburse their employees for qualified out-of-pocket medical expenses on a tax-free basis.
Yes, they are. As stated in the Federal Register, “An HRA is a self-insured group health plan, and therefore, is an eligible employer-sponsored plan.”
For small employers that don’t offer group health insurance, a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) might be a viable alternative, but the ICHRA is as well.
For a deeper look into ICHRAs and QSEHRAs, refer to our guide, “QSEHRA vs. ICHRA: Understanding the differences between these health reimbursement arrangements.”
Both job seekers and current employees often put health insurance at the top of their benefits wish lists. For starters, health insurance can play a pivotal role in helping employees make informed health and wellness decisions for themselves and their families. From an employer’s standpoint, offering health insurance can make an impact on recruiting and retaining a productive workforce, and ultimately staying competitive.
We hope that this guide sets you on the right path to choosing an employee health insurance plan., If you have questions about setting up a group health plan, our team is here to help.