Group health insurance, also known as employer-based group medical insurance or employer-based coverage, started in the 1940s as a by-product of wartime legislation. When the Stabilization Act of 1942 froze wages and salaries across the nation, employers began offering group health insurance as an incentive to attract workers. Here's our official post on Group Health Insurance for Beginners that covers the ins and outs.
While health insurance is still considered a key recruitment tool for some employers, it's required by law.
Nearly 50% of Americans receive health insurance through a group health insurance plan.
This article explores the basics of group health insurance, how it differs from individual insurance, and alternatives to administrating group health insurance.
Ready to get started?
Let's jump in.
Group health insurance is a single policy offered to a group of people; most commonly, an employer provides coverage to their employees.
Everyone in this policy receives the same benefits and medical coverage. In some cases, there may be plan tiers where the employee can choose a higher level of coverage and certain add-ons.
Employees also have the option to add a spouse and dependents to the medical plan.
There are three principle purposes of group insurance.
These include:
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.
A company purchases the group health insurance plans and then offers them to their employees. The premium cost is often shared between the employer and the employee. Many insurers require at least 70% participation, although that may vary from state to state.
This requirement may leave you wondering if small business can even get a group insurance policy. The ACA does require insurers to offer group health insurance to small businesses that have between 1 to 50 employees.
The employer has to have at least one qualified employee that isn't an owner or a spouse.
A group insurance plan is group health insurance offered by an employer (or an association or union) for individuals currently employed by that organization.
They can include:
Under the Affordable Care Act (ACA), employers with 50 or more full-time employees must provide health insurance to these employees and their dependents. So yes, a group insurance plan would meet the ACA's employer mandate.
For employees, there are several advantages of choosing to join an employer's group health plan.
There are several advantages of a group plan for employers.
Group health plans are typically comprised of one of the following: HMOs (health maintenance organization) and PPOs (preferred provider organization).
Some plans might also include a tax-advantaged HSA (health savings account) to help employees pay for out of pocket medical expenses.
Small businesses with less than 50 FTEs (full-time employees) aren't required to offer health insurance plans. However, not offering health insurance can harm recruitment.
According to SHRM's 2020 Employee Benefits Survey, health-related benefits top the list of importance, with 88% of respondents marking it as number one.
Offering health insurance could be a deal breaker for prospects and retaining current employees.
→ Read more about small business health plans in our handy guide!
Individual health insurance is when people purchase a single policy for themselves and/or their families. People may enlist an insurance agent or broker to help them guide them through the different policies.
Traditionally, group health insurance has been offered at a lower cost because the risk to the insurer is distributed across multiple members. However, as the individual health insurance market strengthens, the cost of individual health insurance is lowering in many markets. The ACA also offers premium tax credits for those who qualify to combat costs.
By law, employers with more than 50 employees have to offer affordable health insurance.
But how do you determine affordability?
It means the policy premium can't be more than 9.61% of the employee's salary. If it's more than that, it's considered unaffordable.
However, when an employee adds a spouse and dependents, the cost of the premium may exceed this threshold, causing an issue with affordability called the Family Glitch. You can read more about the family glitch here.
While group plans have their upsides (like their familiarity and reputation as a recruitment tool), there are downsides to group health insurance as well.
Not surprisingly, these are all things that QSEHRAs and ICHRAs can mitigate (which is why they are so great!).
Here are a few.
→ Read more about Group Plans vs. HRAs here.
Yearly premium hikes, one-size-fits-all policies, and participation requirements may make group health insurance unappealing to many employers and employees.
Is there a better way?
We're glad you asked.
There are affordable alternatives like HRAs (health reimbursement arrangements). Take Command specializes in the two newest HRAs: ICHRA and QSEHRA.
HRAs are increasing in popularity because they allow businesses of all sizes to offer an affordable alternative to their employees.
Employers reimburse employees tax-free for individual health insurance premiums or out-of-pocket medical expenses with an HRA.
The reimbursement model allows employees to choose a plan that is right for them and fits their needs. It also alleviates the employer from navigating complex requirements and premium hikes.
We're here to help you decide which insurance is best for your business or your client. With our first-to-market ICHRA and QSEHRA platform with personalized enrollment support, we help companies like yours every day roll out this type of benefit.