Group Health Insurance for Beginners


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.

 

 

What is group health insurance? 

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. 

What is the purpose of group insurance? 

There are three principle purposes of group insurance.

These include:

  • Ensures that employees are taken care of
  • Serves as a proven recruitment and employee retention tool
  • Satisfies the employer mandate set forth by the ACA

What is a group health plan under ERISA?

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.

How does group health insurance work? 

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. 

What is a group insurance plan?

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:

  • Employer-sponsored plans for current employees for small or large groups
  • Self funded plans
  • Level funded plans 
  • Employee organization plans (like union plans)
  • National health plans in countries outside the USA

Does group insurance meet the ACA’s insurance mandate? 

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.

What are the employee advantages of joining a group health plan?

For employees, there are several advantages of choosing to join an employer’s group health plan. 

  • Decisions at a minimum: Employees decide between a couple of plans, meaning they don’t have to research and make a choice for themselves. This potentially saves time (even though it also means they have zero choice in the matter!)
  • Shared costs: Employers and their employees often divide the cost of premiums. Some companies are more generous than others.
  • Tax advantage: Premium contributions made by the employee are not subject to federal taxes. That means can employee’s taxable income is lower than his actual income.
  • Essential Coverage: ACA-compliant group health policies offer minimum essential coverage to include: preventative care, maternity and newborn care, prescriptions, and emergency room visits (the extent of which will depend on what type of plan it is).

What are the advantages of a group plan? 

There are several advantages of a group plan for employers.

  • It has moderately easy set up and administration. 
  • It’s tax-free for employers and employees
  • It’s a well known model, meaning it’s perceived as an excellent recruiting tool
  • There are an abundance of products available
  • Employees don’t have to think too much about their health plan choice or their health coverage.

What is an example of group health insurance? 

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.

Do small businesses have to provide health insurance to their employees? 

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!

How does group insurance differ from individual health insurance?

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.

 

Is group health insurance affordable? 

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. 

What are the disadvantages of group health insurance?

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!).

Ask our experts which option is best for your business

Here are a few. 

  1. Participation rate concerns:  Many states have a requirement of a 70% participation rate, which can be difficult to maintain. 
  2. Pricey renewals: Double digit renewals aren’t uncommon. A company might not have the reserve to take on a large renewal every year or the budget flexibility to swallow a big renewal.
  3. HR Admin capacity: A group health insurance plan requires someone to manage it. That includes comparing quotes, choosing a plan, census uploads and explaining things like coinsurance rates, deductibles and employee vs employer contributions to their teams. This is time consuming and can be a headache. 
  4. Remote employees and part-time workers: Group plans typically don’t work with out of state employees and part-time workers. In today’s economy, this type of employee is increasingly common. 
  5. No choice for employees: While some people might want to keep their doctor in network or a certain prescription covered, it’s up to the admin to guess what might work best for everyone. Chances are, it’s not going to check all of the boxes for every employee. Employees will only have an option or two, making it feel very one size fits all.

→ Read more about Group Plans vs. HRAs here. 

 

Are there any alternatives to group health plans? 

 

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. 

Which group health insurance option is best for you?

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. Ask our experts how to get started today (it's easy!)

 

 





Source link