Group Health Insurance for Businesses

Business health insurance, otherwise known as group health insurance, is a way to purchase health insurance for an aligned group of people rather than on an individual basis. Group health insurance is typically offered by an employer to its employees as part of an employee benefits package, allowing both the employer and the employee to receive certain cost and tax benefits. 

Employer-sponsored group health insurance covers almost 153 million people in the U.S. While nearly all large companies (those with 200 or more workers) offer health benefits to at least some workers, small businesses (those with 3-199 workers) are less likely to offer it. Overall, 53% of all firms offer some type of health benefits.

Here, we will delve deeper into the background of group health insurance, how it works, what it covers, and the financial benefits it provides to plan sponsors and individual members. We will also show you how to find group health insurance with the help of an independent insurance agent. 

What Is Group Health Insurance?

Group health insurance is a type of health insurance plan offered to a group of people or members of an organization. Employers most often offer it to their employees as part of an overall compensation and benefits package. 

Group health insurance is beneficial for employees because it is usually more affordable than buying individual health insurance. What's more, employers pay for a portion of the health insurance premiums for their employees. 

If you’ve ever enrolled in health insurance or other types of plans like dental insurance or vision insurance provided by your employer, you've participated in a group insurance plan.

How Does Group Health Insurance Work? 

Group health insurance is purchased by an employer who then offers it to employees as an employee benefit, along with other programs like dental insurance, vision insurance, PTO, and more. 

While we call these plans group plans, each employee is enrolled as an individual and receives his or her own policy. The group refers to the people associated with a single organization who are covered under the plan. 

If your employer offers group health insurance, you can participate in the plan or decline the coverage. If you choose to enroll in the group health benefit that your company offers, you'll pay a portion of the premium (typically through a payroll deduction) and your employer pays a portion of the premium. The employer typically pays a larger portion of the premium than the employee does. 

The cost of group health insurance is usually much lower than individual plans because the risk is spread across a higher number of people. Simply put, this type of insurance is cheaper and more affordable than individual plans available on the market because more people buy into the plan.

Since 2009 and the passage of the Affordable Care Act (ACA), businesses with 50 or more employees are required to provide group health insurance. Prior to that, employers were not required to offer health insurance, but many did because of the various benefits it provides. 

History of Group Health Insurance

Before the 1930s, the American public largely paid for its own medical care. Employers had little motivation to provide health coverage. 

Some Americans who worked in dangerous professions like mining, steel, and railroads had access to company doctors in their own clinics or union-operated infirmaries. These company-sponsored clinics were some of the earliest examples of businesses becoming involved in the health and well-being of their employees. 

The history of group health insurance then became a story of constant change and upheaval as society changed and people's lives became more conjoined with their workplaces. Here are some of the most important developments over time: 

• When the U.S. was in the grips of the Great Depression, citizens could barely afford food and shelter, let alone medical care. President Franklin D. Roosevelt considered nationalizing healthcare as part of the Social Security Act but chose not to for a variety of reasons. This was then and remains a highly controversial proposition. 
• Private health insurance companies began to emerge. Blue Cross and Blue Shield plans paved the way for private insurers to begin crafting plans to meet the needs of the growing health insurance market. But at this time, these health insurance offerings were purchased almost exclusively by individuals, not by employers for their employees. 
• In 1942, during World War II, the Stabilization Act was passed to limit employers' freedom to raise wages and compete for the limited number of available workers on the basis of pay. Employers reacted by offering health benefits as incentives instead, permanently and inextricably linking employers to health insurance. 
• Healthcare coverage options expanded in the 1950s as labor unions began using healthcare benefits as bargaining points. "Major medical plans" became the prevalent form of coverage during this time. 
• In 1965, Lyndon Johnson created the Medicare and Medicaid systems to address the issue of healthcare for retirees and the poor.  
• As costs increased and cracks in the employer-sponsored system emerged into the 1990s, the conversation around nationalized healthcare continued to rear its head. The health insurance industry remained dominated by the employer-sponsored system, but as healthcare costs increased rapidly, the "managed care" era began with employers offering plans called health maintenance organizations (HMOs) that were designed to keep costs in check. 
• Employees were generally unhappy with managed care options because they were often blamed for limiting patient choices and denying coverage for necessary care. Plan choices again began to moderate. Many employers began offering employees a menu of plans from which to choose that included HMOs, PPOs, POS plans, and old-school indemnity (or major medical) plans. 
• In 2010, President Barack Obama signed into law the Affordable Care Act as a means of allowing more Americans to have access to health insurance and an attempt to bring down healthcare costs across the board.

Today, ACA has expanded the Medicare rolls in some states and has put requirements in place for employers with over 50 employees to purchase healthcare benefits for their employees or face a penalty. ACA also created the Healthcare Marketplace where individuals who don't have employer-sponsored health insurance can easily shop for individual plans. 

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Benefits of a Group Health Insurance Plan

The primary advantage of group health insurance is that it spreads risk across a group, or pool, of individuals. Rather than the insurance company pricing a plan based on the health risks of a single person, as it would with an individual health insurance plan, a group health plan is priced with the risk for major health insurance claims spread across a group of people. 

This benefits the group members by keeping premiums low and allowing employers to offer valuable benefits at a more manageable cost. 

Group health insurance provides a variety of other benefits for both employers and employees.

How does group health insurance benefit employers?

• Group health insurance plans offer numerous tax benefits. Premiums paid by employers are tax deductible.
• Group health insurance offered as part of a comprehensive employee benefit plan helps an employer attract and retain good employees. 
• Employers with fewer than 25 full-time employees receive a small business healthcare tax credit. 

How does group health insurance benefit employees?

• The main financial benefit of group health insurance for employees is that businesses generally pay most of the health insurance premiums. The premiums are also lower across the board compared to an individual health plan. 
• When an employer offers group health insurance, it's also likely to offer additional group insurance plans (for very little cost to the employee), like dental insurance, vision insurance, life insurance, disability income insurance, and more. 
• Some employers offer health savings accounts (HSAs) along with a high-deductible health plan. These accounts allow employees to save pre-tax money for future healthcare needs, and employers and employees can both contribute to these accounts. 
• Employee contributions for group health insurance premiums are made pre-tax, which means they are deducted from the employee's gross pay, and the employee's taxable income is reduced.  
• Enrolling in a group health plan is usually pretty easy for an employee. Enrollment is typically facilitated by the employer on an annual basis, and the employee won't have to disclose health information or take any health exams in order to get a quote or be approved for coverage. An employee who is 25 years old with no health conditions and an employee who is 60 years old with a chronic condition like high blood pressure or diabetes will pay the same.
• Many employers, especially larger employers, will offer several plans from which an employee can choose the best one for their needs. 

Who Can Sign Up for Group Health Insurance?

Employers typically have an annual open enrollment period during which you'll be able to make your benefits selections, including health insurance, dental insurance, and vision insurance. You most likely can't make changes to your health coverage at other times unless you qualify for special enrollment period typically defined by a qualifying life event, including: 

New employees or employees who have just turned 26 years old fall under a special enrollment period, as well. This — along with the qualifying life events noted above — allows employees to sign up for coverage outside of the open enrollment period. 

Some employers may have waiting periods (typically 30, 60, or 90 days) before a new employee is eligible for group health coverage.

How Many Employees Do You Need to Qualify for Group Health Insurance?

Many health insurance companies offer group health plans to employers with one or more employees. Plans usually vary depending on the size of the business, such as plans designed for small businesses with 1-50 employees, those with 51-2,999 employees, and large employers with 3,000 or more employees.  

To be eligible for group health coverage, an employee must be on payroll, and the employer must pay payroll taxes. Individuals usually not eligible for group coverage include independent contractors, retirees, and seasonal or temporary employees.

Companies can decide whether to offer coverage to spouses and dependent children of employees. The Affordable Care Act requires parents to keep their children on health insurance until they turn 26, but it’s up to employers whether to extend health benefits to spouses and children.

Large employers that don’t extend health benefits to spouses and children may face a tax penalty.

What Coverage Is Provided by Group Health Insurance?

Group health insurance plans offer medical coverage to enrolled members of the plan. A group health plan typically covers medical care for the following types of services: 

• Office visits, including primary care physicians and specialists
• Inpatient hospital care
• Medically necessary surgeries (i.e., not cosmetic surgery)
• Prescription drugs
• Outpatient hospital care
• Physical and occupational therapy
• Maternity care
• Preventive care
• X-rays, imaging, and lab tests
• Mental health services

Every health plan covers these things differently, along with applicable deductibles, coinsurance, and coverage limits depending on the plan. 

What's more, most plans require that members use physicians and facilities that are part of a preferred provider network in order to get the most cost-effective care. Some allow members to see providers outside the network for a higher cost, and some won't provide any coverage for providers outside the network. 

What are the most common types of health plans? 

Here are some of the most common types of health plans and how they cover in- and out-of-network providers:

• Preferred provider organization (PPO): A PPO typically has a wide provider network. A member will be charged less if they see a preferred provider (an in-network provider). Members are free to visit out-of-network providers, but they'll pay more in terms of higher deductibles, copays, or coinsurance, depending on the plan. PPO plans typically have higher premiums than the other types of plans because of the greater flexibility offered to members. 
• Health maintenance organization (HMO): HMOs limit coverage to only the providers in the network. While these plans typically cost less than PPOs and often provide a very high level of coverage, members are restricted to using only in-network providers. And HMO plans require you to see your primary care physician (PCP) first before seeing any specialist. Specialist care is only covered if you have a referral from your PCP. The plan usually needs to approve most tests and procedures in advance, which can sometimes lead to denied care or denied coverage.  
• Point of service plan (POS): POS plans are similar to HMOs, but typically allow customers to see out-of-network providers. POS networks tend to be smaller than PPO networks, and a POS policyholder is responsible for filing claims when they visit an out-of-network provider.
• High-deductible health plan (HDHP) with health savings account (HSA): HDHPs are affordable health insurance plans with relatively low monthly premiums. These plans have high deductibles and out-of-pocket maximums compared to PPO and HMO plans. This means the individual pays more healthcare expenses and not the insurer. Because of this, HDHPs are usually best for younger, healthier individuals who may not need a lot of costly medical care. HDHPs are often combined with a health savings account (HSA), which allows the member to save and pay for out-of-pocket medical costs with pre-tax dollars. 

What is a group health cooperative? 

A group health cooperative is a health insurance plan, typically a non-profit, that is owned by the members. These plans are designed to offer lower cost insurance with the cost of care spread out across the insured group based on what the group takes in in premiums. 

How Much Does Group Health Insurance Cost?

According to the Kaiser Family Foundation's 2023 Employer Health Benefits Survey, the average annual premium for employer-sponsored health insurance in 2023 was $8,435 for single coverage and $23,968 for family coverage. That's an increase of 7% over the previous year. 

Here are some other facts from the survey about group health insurance costs:

• The average premium for single coverage is higher at small firms ($8,722) than at large firms ($8,321). The average premium for family coverage are comparable in small and large firms ($23,621 vs. $24,104). 
• The average premiums in high-deductible health plans with a savings option are lower than the overall average premiums for both single coverage ($7,753) and family coverage ($22,344).
• Premiums for covered workers enrolled in PPOs are higher than the overall average premiums for both single ($8,906) and family coverage ($25,228). 

Most employees contribute to the cost of their coverage. On average, covered workers contribute 17% of the premium for single coverage and 29% of the premium for family coverage. The average annual dollar amounts contributed by employees in 2023 were $1,401 for single coverage and $6,575 for family coverage.

The cost of group health insurance shows no sign of slowing down. Over the last five years, the average premium for family coverage has increased by 22%, compared to a 27% increase in wages and 21% overall inflation.

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Insurance Options for Uninsured Individuals

Not everyone is covered by a group health insurance plan. Self-employed people, people whose employers don't offer health insurance, and others all have options for health insurance. 

If you belong to an organization like AARP, the National Association of Female Executives, the Writer’s Guild of America, or the Freelancers Union, you may be able to get health insurance coverage through your membership. 

Individuals and families can also purchase health coverage from the Health Insurance Marketplace at healthcare.gov. The marketplace was created by the Affordable Care Act as a way for otherwise uninsured people to find and enroll in individual health plans as well as apply for and qualify for tax subsidies to make coverage more affordable. 

Self-employed people can also buy health insurance for their business. This can be purchased through the ACA marketplace or directly from a health insurance company. You may also be able to buy small business coverage through a membership organization.

If you lose your group health insurance, you may qualify for continuation coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA), which lets employees who lose their jobs extend the previous group coverage. You'll have the same benefits as your employer plan, but you'll have to pay the full premium. While continuation coverage is temporary, if necessary, you can stay on it for 18–36 months. 

If you find yourself without coverage for a limited period time and can't afford COBRA coverage, you can look into purchasing an individual short-term health insurance plan. These plans are usually affordable and provide catastrophic coverage, which means you probably won't have coverage for an office visit, but it would kick in if you had unexpectedly large medical expenses. 

Where to Find Group Health Insurance Plans

If you're an employee, you don't have to do much to find group health insurance other than understand and enroll in the plan that your employer offers to you. Or, perhaps you'll have to choose among different policies offered by your employer, so it makes sense to know how each of them works and the pros and cons of each.

Small- to medium-sized employers looking for group health insurance can work with an independent insurance agent in their home state. An independent agent can get quotes from several insurance companies rather than being tied to a single carrier. That way, you can compare quotes and find the best options for your employee population and your business.