What Is Group Health Insurance and How Does It Work?

Major medical insurance isn't just nice to have these days; it can be a necessity. Let's break down the basics of group health insurance and how to use these offerings to help retain your best workers.

Many health insurance and job market changes 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 not just an extra perk but can be 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 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 aged 65 (or older) the same GHP benefits regardless of age.

Another helpful way to understand a group health plan or a group health insurance policy is by recognizing how it differs from individual health insurance. Anyone can apply to enroll through a marketplace insurance provider with 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 business's group health insurance plan is usually sponsored and purchased by the employer. Employees or group members can join the plan during the specific enrollment periods. Employees can also 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.

The portion employees pay towards their premiums is deducted from their paychecks, which is pre-tax in a Section 125 Plan. 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 group health insurance works, 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 regarding benefits 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.

Tailoring Health Benefits to Diverse Workforces

Customizing health benefits is important to help meet the varied needs of employees. For small businesses, pre-tax savings health accounts like Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs) can help employees manage healthcare costs while offering tax advantages. Additionally, level funded plans can offer small businesses the flexibility to manage premiums while receiving potential refunds if claims are lower than expected.

For larger businesses, carrier flexibility allows companies to create tailored benefits packages. Offering diverse plan types—such as HMOs, PPOs, and high-deductible plans—allows employees to select the coverage that best suits their needs, which helps enhance satisfaction and retention.

Tailoring benefits to a diverse workforce can help businesses remain competitive and demonstrates a commitment to employee well-being.

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 providers have expanded their plans to include mental health and alternative treatments. Employers can also provide additional coverage (and some 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 can make 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 tend to contribute to a healthier, more positive work environment.

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, which helps to lower 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 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 federal or state insurance marketplace, and that individual handles 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 they do not purchase a marketplace health plan. In contrast, with group insurance, even those with pre-existing conditions can get coverage for the exact cost of 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 eligible employees for small business health insurance because these organizations may only have two to four workers. Generally, an employer will need participation from your employees anywhere from 50% to 75% to qualify for group medical insurance. The necessary percentage of participating employees may be lower with increasing business size, but specific employer groups and health insurance participation requirements vary by state and insurance 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 insurance 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 insurance carrier to enrolling employees to setting up payroll deductions
• Continuously coordinate with employees and your insurance carrier to monitor 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 insurance carrier's offerings, 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 offerings can help provide a comprehensive healthcare benefits package tailored to your employees' needs.

Comparison of Traditional vs. Emerging Health Insurance Models 

Health insurance options have evolved, offering businesses more flexibility in managing costs and meeting employee needs. Here’s a comparison of traditional insurance models and newer options like self-insured plans and Health Reimbursement Arrangements (HRAs).

The Role of Technology in Managing Group Health Insurance

Technology can help make group health insurance management more efficient and accessible for employers and employees. Here are some ways it's transforming the process:

• Benefits Administration Platforms
  • Modern platforms centralize benefits management, allowing employees to access plan information, enroll in benefits, and track claims in one place. Employers can use these tools to help efficiently manage enrollment, compliance, and respond to employee inquiries, which can potentially reduce administrative tasks.
  • Example: Paychex Flex® offers a self-service portal for seamless employee-employer communication.
• Health Plan Comparison Tools
  • Tools for comparing health plan options enable businesses and employees to evaluate costs, coverage, and networks side by side. These tools can help employees choose plans that fit their health needs and budgets by simulating potential out-of-pocket costs.
• Data Analytics for Cost Management
  • Analytics can help predict health trends and manage costs by analyzing claims data and employee health usage. This allows businesses to implement targeted wellness programs and negotiate better rates with insurers. Predictive analytics can help forecast future claims and optimize health strategies.

By using these technologies, businesses can help streamline health insurance management, improve decision-making, and control costs while enhancing employee satisfaction.

Navigating Regulatory Changes and Compliance in Group Health Insurance

Offering group health insurance requires businesses to stay current with ever-evolving regulations and healthcare laws. Compliance with these regulations is crucial to help avoid penalties and protect the company and its employees. Below are some critical healthcare legislations employers are responsible for following.

• Affordable Care Act (ACA) Compliance
  • The ACA is still one of the most critical frameworks for group health insurance. Employers with 50 or more full-time equivalent employees must offer affordable health coverage that meets minimum value requirements or face potential assessments. Compliance includes tracking and reporting employee health coverage via IRS Forms 1094-C and 1095-C, ensuring businesses offer compliant health plans.
• Recent Legislative Changes
  • Recent adjustments to healthcare laws, such as the American Rescue Plan Act (ARPA), have expanded tax credits for small businesses offering health coverage. COVID-19 relief legislation has also introduced temporary changes, such as telehealth, without cost sharing for HSA Plans and other healthcare provisions, that employers must manage.
• COBRA and Continuation Coverage
  • Under COBRA, employers with 20 or more employees must offer continuation coverage to eligible employees after certain qualifying events (e.g., layoffs).
• Data Privacy Regulations
  • Employers managing health plans must follow HIPAA (Health Insurance Portability and Accountability Act) to safeguard employee health information. This includes strict data privacy measures to protect sensitive information within health plans.

Impact of Group Health Insurance on Employee Retention and Recruitment

Offering competitive health insurance is a critical factor in attracting and retaining talent. For businesses, a well-structured health benefits package may improve recruitment by appealing to top candidates who prioritize healthcare coverage when choosing employers​.

Health insurance also plays a significant role in retention. help reduce turnover and the associated costs of hiring and training new employees. A solid health plan also helps boost employee satisfaction and engagement, which may lead to higher productivity and fewer absences​.

Investing in employee health programs can offer a strong return on investment, mainly due to reduced absenteeism and healthcare claims​.

Expert Tips for Annual Benefits Review and Adjustment

Conducting an annual review of your health insurance benefits is essential for ensuring your offerings align with the evolving needs of your employees and remain compliant with regulatory requirements. Here’s a guide on how to approach this review and make any necessary adjustments:

1. Evaluate Workforce Demographics: Begin by assessing your current workforce or changes in your workforce’s demographics. Each employee group may have different health coverage needs. For example, younger workers might prefer lower-cost options, while employees with families might prioritize comprehensive coverage.
2. Collect Employee Feedback: Gather input from employees through surveys or feedback sessions. Understanding employees' satisfaction with their current health plans, what they find valuable, and what gaps they experience will provide critical insights. Address any pain points, such as high deductibles or limited provider networks.
3. Stay Current on Healthcare Regulations: Review changes in healthcare laws and regulations that may affect your offerings. For instance, updates to the Affordable Care Act (ACA) or state-specific healthcare mandates could affect compliance or cost. Ensure your benefits meet the required minimum coverage standards to avoid penalties.
4. Analyze Plan Utilization and Costs: Review employee health insurance utilization and how employees use their benefits. Are there underutilized services, or are some plans disproportionately costly? This data helps determine whether to adjust or eliminate specific offerings. It can also guide decisions on adding wellness programs or alternative coverage options like telehealth services.
5. Adjust Offerings to Meet Needs: After gathering feedback and analyzing data, decide what adjustments to make. You may need to introduce more flexible options, like qualified high-deductible health plans (HDHPs) paired with Health Savings Accounts (HSAs) or shift to plans that provide broader coverage for mental health or family care. Ensure your offerings are competitive to help with talent retention and recruitment.

An annual benefits review helps keep your health insurance offerings aligned with your employees' needs and regulatory requirements, ensuring satisfaction and compliance.

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 overly complex. Doing it yourself could result in costly errors or oversights that prevent you from getting the right coverage at the right price while following healthcare 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.

Insurance is sold and serviced by Paychex Insurance Agency, Inc., 225 Kenneth Drive, Rochester, NY 14623. CA license #0C28207.