Group Medical Insurance
Nearly 50% of insured Americans receive health insurance coverage through group plans provided by employers, according to 2019 Census data. However, many of them may not have thought much about how exactly this group health insurance works.
What Is Group Health Insurance and How Does It Work?
Group health insurance—sometimes called employer-based coverage—is a type of health insurance plan offered by an employer of a member organization. Members of a group health insurance plan usually receive coverage at a lower cost because the risk to the insurer is distributed across multiple members.
Under the Affordable Care Act (ACA), businesses with 50 or more full-time employees must provide health insurance to full-time employees and dependents under the age of 26 or pay a fee. Insurers are also required to provide group coverage to organizations with as few as two employees. Some states allow self-employed individuals to qualify for group coverage plans as well.
Group health insurance plans are selected and purchased by companies or organizations and then offered to employees. In most states, a group insurance plan is required to have a 70% participation rate, though some states’ minimum rate is higher or lower.
Benefits of Group Health Insurance Plans
Group health insurance policies have a number of advantages and benefits over individual plans. Many employers provide supplemental health plans, which include dental coverage, vision coverage and pharmacy coverage, either separately or as a bundle.
The main benefit group plans offer is lower premiums. According to 2018 research conducted by eHealth, a private online marketplace for health insurance, the average premium cost per individual in a group health insurance plan was $409 a month compared to $440 for an individual plan. In the same study, small group health plans had an average deductible of $3,140 a year compared to $4,578 for individual plans.
Additionally, family members and dependents can be added to group plans at an additional cost to members, which can assist families with sole providers or whose alternative or individual health plan options carry significantly higher prices.
Group health insurance plans provide numerous tax benefits to both the employer and employee. The money employers pay towards monthly premiums is tax-deductible, and employees’ premium payments can be made pre-tax, which may reduce their total taxable income.
Some smaller businesses may also qualify for the small business health care tax credit. The small business health care tax credit benefits an employer with fewer than 25 full-time employees who pays average wages of less than $50,000 a year, offers a qualified health plan through the Small Business Health Options Program (SHOP) Marketplace and pays at least 50% of the cost of health care coverage for each employee (but not for family or dependents).
The Bottom Line
Group health insurance plans are one of the most affordable types of health insurance plans available. Because risk is spread among insured persons, premiums are considerably lower than traditional individual health insurance plans. This is possible because the insurer assumes less risk as more people participate in the plan. For employees who ordinarily would not be able to afford individual health insurance, it is an attractive benefit.