Group health insurance is a type of medical insurance policy for employees or members of a company or organization. A group health insurance plan typically provides health insurance coverage to its members at a lower cost since the risk to health insurers is spread across the members of the group health plan.
How group health insurance works
Businesses and organizations buy group health insurance plans in order to provide medical coverage to their employees or members. Only groups, and not individuals, can enroll in group medical insurance plans. Although all group health insurance plans are different due to variations, they typically share the following characteristics:
- Group medical insurance plans often require a 70 percent participation rate
- Group members have the choice of enrolling in or declining health coverage
- Group health premiums are shared between the company and its employees
- Family members and dependents can be added to group plans at additional cost
To enroll in a group health insurance plan, a business needs at least one full-time or full-time equivalent employee. According to the Affordable Care Act (ACA), small businesses with less than 50 full-time or full-time equivalent employees are not required to offer health insurance, while larger employers with more than 50 full-time employees are required to provide group medical insurance to their workforce.
Advantages of group health insurance
The main benefit of group medical insurance is that group plans tend to have relatively low premiums. Due to the advantage of larger risk pools, group health insurance plans are often more affordable than individual health plans. When more people enroll in a group medical insurance plan, this spreads risk across a wider number of plan members in the group pool, allowing the high insurance cost of any one individual to be balanced by the premiums paid by other members of the plan.
One of the other major advantages of group medical insurance is the potential for tax benefits.
- For an employer, the money paid toward monthly employee premiums is usually tax-deductible
- For employees, premiums are paid with pre-tax dollars, which can reduce their taxable income
- Eligible small businesses may be able to qualify for the small business health care tax credit
Businesses and organizations can enroll in group medical insurance plans at any time during the year.
Common examples of group health plans include Health Maintenance Organization (HMO) plans and Preferred Provider Organization (PPO) plans.
- While HMO plans typically have the advantage of lower premiums due to contracting with providers within a specific network, they provide less flexibility in terms of how members can receive medical care.
- PPO plans usually have greater flexibility and options for seeing doctors and specialists at the expense of higher premiums.