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.
Fast facts about group health insurance
- Group health insurance is health insurance offered (typically by an employer) to eligible members of a group (e.g., employees)
- The most common types of group health insurance plans include HMO, POS, and PPO
- An employer usually must have at least two eligible employees to qualify for group health insurance
- Group health insurance can provide tax benefits to both the employer and the employee
In this guide, we’ll explain what group health insurance is, what benefits it typically provides to employees, and how businesses can secure coverage.
Getting to know group health insurance and how group plans work
What is group health insurance?
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 former 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.
What are examples of group health insurance plans?
Here are some common types of group health insurance plans:
- Health Maintenance Organization (HMO): With this option, eligible employees must select a primary care physician (PCP) within the HMO network and are required to go through that PCP to see specialist providers. Services are limited to providers within the HMO network. HMO plans generally have lower premiums compared to other group health insurance plans. To go a step further, Foery shares a couple of additional HMO-related insights. “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).”
- Point of Service (POS): Similar to an HMO, employees must choose an in-network PCP, and like a Preferred Provider Organization (PPO), they have the freedom to receive care outside of the network, albeit at a higher cost. Another way to think of a POS system is that it is “group health insurance that is a hybrid of an HMO and a PPO,” says Foery. “And with many of the POS plans that exist today, you don’t have to select your doctor upon enrollment, which can be appealing for employees.”
- Preferred Provider Organization (PPO): With a PPO, employees are not required to choose a PCP and have the flexibility to receive care from both in-network and out-of-network providers. However, out-of-network services typically have higher out-of-pocket costs.
“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, Former Vice President of Insurance at OnPay
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.
Fully insured plan
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.
Fully self-insured plan
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.
Partially self-insured plan
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.
What do group benefits generally include for employees?
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:
- Health insurance
- Dental and vision insurance
- Life insurance
- Disability insurance
- Supplemental insurance (to cover out-of-pocket expenses not covered by regular insurance)
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.
What should employers know about open enrollment?
Regarding group health insurance, open enrollment is the period during which employees can:
- Sign up for health insurance for the first time
- Make changes to their existing coverage
- Drop coverage altogether
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:
- First of the month following 30 days
- First of the month following 60 days
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.
Are group and individual insurance the same?
As hinted earlier, group and individual insurance are not the same thing.
- Group health insurance is provided to employees by employers (or to members, such as a union or association).
- Individual health insurance is coverage that a person secures on their own, without going through an employer, union, or association.
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.
Why do employers offer group health insurance to their employees?
Employers provide group health insurance due to the multiple benefits it offers.
Advantages of group health Insurance plans
- Recruiting and keeping top talent: Given that many employees rank health insurance as the most valuable and desirable benefit, it’s clear that group health insurance is a key tool for attracting and retaining top performers
- Encouraging healthier employees: Some studies have found that poor employee health can adversely impact both the individual and a company’s profitability. By providing health insurance, you can encourage employees to improve their health and productivity
- Tax savings: Both employees and employers can take advantage of tax savings when the insurance is offered as part of a cafeteria plan. For more details, refer to the article titled “What is a cafeteria plan?”
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.”
Potential disadvantages of providing group health insurance
- Increasing costs: The price of group health insurance has been on an upward trend. Forecasts for 2024 are predicting a rise of over 6% in employer-sponsored health insurance costs
- Varied employee preferences: Since the employer selects the insurance carrier and the available plans, it may be challenging to get everyone in your organization on the same page. Some employees might find the options not to their liking, such as deductibles, cost-sharing, or in-network providers.
- Complex administration: Offering group health insurance means that employers must also handle the administrative aspects associated with plans. This includes complying with laws pertaining to nondiscrimination, privacy, governmental reporting, and more. On the plus side, third-party administrators (TPAs) can help with plan management
Here are some examples of situations in which Foery believes a TPA can be especially useful:
COBRA compliance
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.
State continuation scenario
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.
Affordable Care Act (ACA) laws require reporting 50+ employees
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:
- File an annual information return with the Internal Revenue Service (IRS) that lets them, know whether or not you offered health insurance to your employees, and what type of health coverage you provided
- The same information you file with the IRS must also be provided to your employees
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.
Did you know?
Whether or not health insurance was provided, ALEs must provide a copy of Form 1095-C to each full-time employee.
Getting group health insurance for your company
Securing coverage is straightforward after you are familiar with some of the fundamentals.
How many employees do you need to qualify for group health insurance?
- Small-group coverage: Typically, to qualify for small-group health coverage, a business needs to have between two and 50 full-time eligible employees. In addition, most carriers will require coverage to be sponsored by a business with the business contributing at least 50% toward the single premium. Also, carriers will require at least 50% of the full-time eligible employees to enroll. “Employers will want to know that some states define a small group differently,” says Foery. “For example, in California, a group can be two to 99 employees.”
- Large group coverage: Companies with more than 50 full-time employees generally qualify for large-group coverage. They are also subject to an employer mandate which is part of the Affordable Care Act, which means they must offer affordable health insurance, or could end up facing penalties
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 former Vice President of Insurance, Paul Foery
Which employees are eligible for group health insurance?
An employee averaging at least 30 hours per week is considered full-time and therefore would be eligible for group health insurance.
What benefits are covered in group health Insurance?
- Small-group plans generally must provide at least the minimum essential coverage, consisting of the ACA’s 10 essential health benefits — including preventative care, hospitalization, emergency services, and more
- Large-group plans are generally not required to offer the ACA’s 10 essential health benefits
How does an employer purchase 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.
What’s the difference between group health insurance and HRAs?
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.
Are HRAs considered group health plans?
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.”
Group health insurance and larger employers
- Some studies show that larger employers are much more likely to offer health insurance than their smaller counterparts. This is primarily because smaller businesses may find it challenging to bear the costs. With a larger pool of employees, big companies usually have more negotiating power with insurance companies compared to smaller ones
- Large employers aren’t required to adhere to the ACA’s essential health benefit offerings, giving them more leeway in selecting and tailoring their group health insurance plans. To enhance employee health outcomes and control costs, many large employers incorporate additional health solutions like wellness programs and telemedicine into their group coverage
- Large employers looking to expand their health benefits might consider integrating a traditional HRA or an Individual Coverage HRA (ICHRA) plan. These accounts allow employers to reimburse employees for medical expenses that are not covered by the underlying health insurance 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.
Group health insurance can increase retention and productivity
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.
