Group health insurance is a highly sought after benefit in the U.S. and is often leveraged by employers to attract and retain top talent. Group insurance offers coverage to an organization’s employees, often at significantly lower costs due to the cost-sharing with the employer. Considering the high costs of healthcare, this benefit can give peace of mind to employees who want to ensure that they — and their families — are covered for any medical needs that may arise within the year.
Group insurance plans are offered through small businesses and large ones, though the benefits can differ. Small group plans are usually available to organizations with between 1 and 50 qualifying employees other than the business owner, while large plans are available to organizations with more than 50 employees. The biggest difference between small and large group coverage is that smaller employers have less negotiating power than large employers when it comes to the prices of insurance coverage. We’ll look at a few other key facts about traditional group health insurance below.
A group health insurance plan is a plan available to businesses with at least one qualified, full-time equivalent employee other than the owner of the business. With group plans, members are able to get health insurance at a reduced rate because the insurance carrier’s risk is spread out among several policyholders. Insurers typically require a certain percentage (usually 70%) of qualified employees to participate in order to be valid. The business usually pays a percentage of the premium with the members paying a percentage, too. Members may also elect for additional coverage for family members at an extra cost.
Group health insurance plans can be purchased by companies but not by individuals. Companies can offer these plans to their employees or members but must achieve a minimum of 70% participation. Plans may differ between organizations, though larger companies tend to enjoy more personalized plans and rates since the insurer is covering a larger pool of people.
A company may work with a broker to choose a plan, and employees are able to accept or decline coverage. More complex plans may be offered in tiers to businesses, ranging from basic coverage to more comprehensive coverage that includes add-ons. Premiums are split between the company and its employees.
Group insurance is seen as a prized benefit because the cost of health insurance through a group plan tends to be much lower than an individual plan. Participants usually enjoy broader coverage at lower rates than they would by purchasing a plan on their own. This makes it easier for companies to achieve that 70% participation rate.
Group plans spread risk across a pool of insured individuals, which keeps premiums lower for the group members. Insurers offer better rates to larger groups because it is easier for them to manage risk. Large group coverage rates are based on a number of factors, including prior claims (where applicable), employee participation, and medical questionnaires. The biggest factor in determining rates for large companies is the claims experience of that group over the past several years.
Smaller organizations tend to have less bargaining power, though insurers must follow the Affordable Care Act (ACA) along with any applicable state regulations when calculating the cost of health insurance. That means rates can only be calculated according to:
While 56% of small businesses offer health insurance to at least some of their employees, the cost of offering a small group plan can sometimes inhibit employers from doing so. In cases where employers do not offer small group coverage, some people purchase group coverage through another organization or association (the Freelancers Union, American Association of Retired Persons, etc).
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