What is a 'Group Health Insurance Plan'

A group health insurance plan is a health insurance plan that provides coverage to members of a group that tends to be employees of a company or members of an organization. Members of the group usually receive insurance at a reduced cost because the insurer’s risk is spread across a group of policyholders.

BREAKING DOWN 'Group Health Insurance Plan'

Group health insurance in the United States has evolved during the 20th century. The idea of collective coverage first entered into public discussion during World War I and the Great Depression. Soldiers fighting in the First World War received coverage through the War Risk Insurance Act, which Congress later extended to cover servicemen’s dependents. In the 1920s, healthcare costs increased to the point that they exceeded most consumers’ ability to pay. The Great Depression exacerbated this problem dramatically, but resistance from the American Medical Association and the life insurance industry defeated several efforts to establish any form of a national health insurance system. This opposition would remain strong into the 21st century.

Employer-sponsored group health insurance plans first emerged in the 1940s as a way for employers to attract employees when wartime legislation mandated flattened wages. This was a popular tax-free benefit which employers continued to offer after the war’s end, but it failed to address the needs of retirees and other non-working adults. Federal efforts to provide coverage to those groups led to the Social Security Amendments of 1965, which laid the foundation for Medicare and Medicaid. These government-sponsored health plans continue to provide care to those left out of employer-sponsored group health insurance plans. As national health expenditures have climbed past 15 percent of gross domestic product (GDP), the Affordable Care Act of 2010 substituted a nationwide mandate that each taxpayer join a group plan for the sort of single-payer solution that has faced stiff opposition since the 1930s.

Benefits of a Group Health Insurance Plan

The primary advantage of a group plan is that it spreads risk across a pool of insured individuals. This benefits the group members by keeping premiums low, and insurers can better manage risk when they have a clearer idea of who they are covering. Insurers can exert even greater control over costs through health maintenance organizations (HMOs), in which providers contract with insurers to provide care to members. The HMO model tends to keep costs low, at the cost of restrictions on the flexibility of care afforded to individuals. Preferred provider organizations (PPOs) offer the patient greater choice of doctors and easier access to specialists, but tend to charge higher premiums than HMOs.

The vast majority of group health insurance plans are employer-sponsored benefit plans. It is possible, however, to purchase group coverage through an association or other organizations. Examples of such plans include those offered by the American Association of Retired Persons, the Freelancers Union and wholesale membership clubs.

RELATED TERMS
  1. Group Life Insurance

    Group life insurance is offered by an employer or other large-scale ...
  2. Classified Insurance

    Classified Insurance is coverage provided to a policyholder that ...
  3. Group Term Life Insurance

    Group term life insurance is term insurance in which the insurer ...
  4. Insurance Coverage Area

    Insurance coverage area refers to the geographic region in which ...
  5. Insurance Industry ETF

    An insurance industry ETF invests primarily in insurance companies ...
  6. Wholesale Life Insurance

    Wholesale life insurance is a type of employer-sponsored protection ...
Related Articles
  1. Insurance

    Defined Contribution Health Plans: A Primer

    A look at defined contribution health plans and how they work for both employees and employers.
  2. Managing Wealth

    How To Choose A Healthcare Plan

    HMOs? PPOs? CDHPs? We'll clear up the confusion so you can find the right coverage.
  3. Insurance

    Services That Health Insurers Often Decline

    Understanding the guidelines of health insurance is complex and many don't cover what you'd like. Find out which services are covered by most plans today.
  4. Insurance

    Health Insurance Tips For College Students

    Why buy for health insurance when your parents' policy can cover you? Read on to avoid paying twice.
  5. Insurance

    What You Need To Know About Student Health Insurance

    Before heading off to college, read up on health insurance plans.
  6. Insurance

    Where to Find Affordable Health Insurance

    The cost of medical services can hit the wallet hard: there are 1.7 million personal bankruptcies every year due to inability to pay medical bills.
  7. Insurance

    How To Buy Long-Term Care Insurance Cheaply

    Consumers looking for long-term care insurance shouldn't have to pay full price. Despite the sometimes-hefty costs, there are ways to save on premiums.
  8. Insurance

    Can I Get Life Insurance?

    Find out what you can do to get the coverage you need for the right price.
  9. Insurance

    Top Insurance Companies

    Ranking the largest insurance companies can be done in a number of ways. Identifying which companies are competitors is a good place to start.
RELATED FAQS
  1. Why is my insurance premium so high/low?

    Insurance premiums can be affected by many factors including: type and amount of risk size of deductible amount of coverage ... Read Answer >>
Trading Center