What Is Group Health Insurance and How Does It Work?
- Employee Benefits
6 min. Read
Last Updated: 10/25/2023
Table of Contents
Major medical insurance isn't just nice to have these days; it's a necessity. Let's break down the basics of group health insurance and how to use these offerings to retain your best workers.
Many changes in the health insurance and job market have more Americans, particularly business owners, focused on finding the right group health coverage while managing costs. A benefit plan containing sufficient health insurance is no longer just an extra perk but an expected component of a competitive compensation package.
Not only will group health insurance help you keep your current employees and reduce turnover, but it's also a must when competing with other businesses vying for your recruits. In the 2023 Paychex Pulse of HR Report, HR leaders shared that they know they must provide benefits that cater to the priority of their applicants. Health coverage is the top benefit HR professionals say their companies offer, followed by dental and retirement. It's a clear message: As an employer, you must provide health benefits to stay competitive in the job market. Do you want group health insurance explained? Let's look at how you can utilize group health insurance offerings.
What Is Group Health Insurance Coverage?
What are group health plans? Group health insurance plans refer to the health coverage benefits that apply to a group of members, typically employees of a business or organization. The Social Security Administration (SSA) states that a group health plan (GHP) is based on current employment. Moreover, employers with 20 or more employees must legally offer current workers and their spouses who are age 65 (or older) the same GHP benefits regardless of age.
Another helpful way to understand what is a group health plan or what is a group health insurance policy is by recognizing how it differs from individual health insurance. Most anyone can apply to enroll through a marketplace insurance provider within individual health plans. In contrast, group health plans are specific to that group's members. For businesses, these health plans are also known as employer-based or employer-sponsored coverage.
How Does Group Insurance Work?
A group health insurance plan for a business is usually sponsored and purchased by the employer. Employees or group members can join the plan during the enrollment periods. Employees can also choose to add spouses (if eligible) and dependents through their group health plan, typically for an additional cost. Plans vary regarding levels of coverage, cost, number of participants, and members' overall health. An employee group with lower health risks will generally command lower premiums.
The portion employees pay towards their premiums is deducted from their paycheck, pre-tax. When a group health plan member sees a healthcare provider, the provider sends a claim to the insurer, who then reimburses the provider based on the plan's coverage. Members pay out-of-pocket for any remaining amount, which goes towards their deductible or out-of-pocket maximum.
Types of Group Health Insurance Plans
What are group insurance plans? In addition to understanding how does group health insurance work, employers have a handful of group health insurance options. The various types of group insurance mean that an employer can typically count on finding a group health plan that meets their needs in terms of benefits provided and their budget. A health maintenance organization (HMO) and a preferred provider organization (PPO) tend to be the two most popular plans. Another example of group health insurance is a high-deductible plan. Employers can also opt for self-funded plans where employees pay their premiums to the employer in exchange for the employer assuming the financial responsibility of all health care claims, after the employee’s health plan deductible and out-of-pocket maximum are reached.
What Does Group Health Insurance Cover?
While group health insurance plans vary, they tend to cover a portion or full costs related to medical care — physician visits, hospital visits, approved in- and out-patient procedures, preventative care, prescriptions, therapeutic care (e.g., occupation and physical therapists), and emergent care such as visits to the emergency room or urgent care center. It's up to members to check with their health insurance company for details on exactly who, what, and how much their plan covers and their financial responsibility for necessary and elected procedures.
Some group health insurance plan providers have expanded their plans to include mental health and alternative treatments. Employers can also provide additional coverage (and financial relief) by giving employees a health savings account (HSA) or health reimbursement arrangement.
Group Health Insurance Benefits
There are several benefits of group health insurance. Unlike individual insurance, where employees pay separately for 100% of their premiums, group health insurance allows employers and employees to share the costs, with employers covering some part of the premium cost for a single employee or dependents. Many health insurance plans also include preventative services so employees can catch health issues before they escalate and become more complex, stressful, and expensive to manage.
Lowering healthcare expenses makes medical care more affordable and accessible for your employees and their families. Healthcare is fundamental to a person's comprehensive physical and mental well-being. A healthy worker will likely take fewer sick days, feel better and happier, and be more productive. Some of these benefits may be difficult to measure, but collectively, they contribute to a healthier, more positive work environment. Finally, it's worth noting that by offering your workers a meaningful group health insurance package, you're sending a clear signal that you care about them. This can influence an employee's loyalty and engagement toward your business.
Depending on their size and situation, businesses that offer group health insurance may also be eligible for federal and state tax credits. Medical insurance premiums are deducted from a worker's pre-tax pay, thus lowering their overall tax liability.
How Does Group Insurance Differ From Individual Insurance?
When comparing individual vs. group health insurance, several differences surface. Like a group health plan, individual insurance is a plan that covers a single person or a family. The distinction, however, is that an individual plan is purchased directly by an individual from an insurance provider or in a government marketplace, and that individual is responsible for the total cost of their premiums. In contrast, the premium cost in a group health plan is shared between the employee and employer.
Because group health insurance covers many people rather than a single individual, an employer has some negotiating power regarding premiums and benefits. However, the plan is identical for all participants. With an individual healthcare plan, the individual can customize their plan to their specific needs and budget.
Another key difference between individual vs. group health insurance is how each type of plan is underwritten. In individual plans, a person may be subjected to higher premiums based on their health risk factors and current health status, if not purchasing a marketplace health plan. In contrast, with group insurance, even those with pre-existing conditions can get coverage for the same cost as other employees. Individual health plans are also portable. If a person leaves their employer, their plan goes with them. This is not the case for an employer-sponsored healthcare plan. Once an employee leaves the business, they are responsible for choosing new coverage or continuing their employer coverage through COBRA, short for Consolidated Omnibus Budget Reconciliation Act.
How Many Employees Are Needed for Group Health Insurance?
As the name implies, you must have more than one individual for group health insurance plans. This can be as few as two people for small business health insurance because these organizations may only have two to four workers. Generally, an employer will need anywhere from 50% to 75% participation from your employees to qualify for group medical insurance. The necessary percentage of participating employees may be lower with increasing business size, but specific employer group health insurance participation requirements vary by state and carrier. Spouses, families, and dependents are not included in the percentage.
How To Get Group Health Insurance
Many time-consuming, complex tasks must be done right to select the right group insurance plan and keep it running smoothly:
- Research carriers in your area.
- Select plan offerings.
- Obtain quotes.
- Compare the results to find coverage that fits your needs and budget.
- Manage employee enrollment, from submitting application forms to the carrier to enrolling employees to setting up payroll deductions.
- Continuously coordinate with employees and your carrier to stay on top of enrollment changes, remove terminated employees from coverage, and track the eligibility of new hires.
- Maintain regular communication with employees at different stages of the plan year, including notifying them of open enrollment and providing enrollment assistance.
- Make premium payments on time, stay compliant with IRS regulations, and set up and administer a COBRA or state continuation program for employees who have lost coverage.
Other Types of Group Insurance
Depending on the needs of the business, its employees, and the offerings of the carrier, group insurance plans can also include a range of additional health-related coverage, including, but not limited to, dental, vision, life insurance, and long-and short-term disability insurance. These types of group insurance can round off a robust benefits plan for comprehensive healthcare tailored to your employees' needs.
Finding the Right Health Insurance Doesn’t Have To Be Complicated
Obtaining the necessary quotes, enrolling employees, and monitoring the plans can be time-consuming and highly complex. Doing it yourself could result in costly errors or oversights that prevent you from getting the right coverage at the right price while complying with the law. A full-service, experienced employee benefits agency can dedicate time and expertise to your situation so you can take the guesswork out of finding and administering a group health plan.
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