Group Health Insurance

What Is a Group Health Insurance Plan?

Group Insurance health plans provide coverage to a group of members, usually comprised of company employees or members of an organization. Group health members usually receive insurance at a reduced cost because the insurer’s risk is spread across a group of policyholders. There are plans such as these in both the US and Canada.

Key Takeaways

  • Group members receive insurance at a reduced cost because the insurer’s risk is spread across a group of policyholders.
  • Plans usually require at least 70% participation in the plan to be valid. 
  • Premiums are split between the organization and its members, and coverage may be extended to members' families and/or other dependents for an extra cost.
  • Employers can enjoy favorable tax benefits for offering group health insurance to their employees.

How Group Health Insurance Works

Group health insurance plans are purchased by companies and organizations and then offered to their members or employees. Plans can only be purchased by groups, which means individuals cannot purchase coverage through these plans. Plans usually require at least 70% participation in the plan to be valid. Because of the many differences—insurers, plan types, costs, and terms and conditions—between plans, no two are ever the same.

Group plans cannot be purchased by individuals and require at least 70% participation by group members.

Once the organization chooses a plan, group members are given the option to accept or decline coverage. In certain areas, plans may come in tiers, where insured parties have the option of taking basic coverage or advanced insurance with add-ons. The premiums are split between the organization and its members based on the plan. Health insurance coverage may also be extended to the immediate family and/or other dependents of group members for an extra cost.

The cost of group health insurance is usually much lower than individual plans because the risk is spread across a higher number of people. Simply put, this type of insurance is cheaper and more affordable than individual plans available on the market because more people buy into the plan.

History of Group Health Insurance

Group health insurance in the United States originated 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 World War I 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.

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 a greater choice of doctors and easier access to specialists but tend to charge higher premiums than HMOs.

49.6%

The percent of the U.S. population covered by group health insurance.

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 (AARP), the Freelancers Union, and wholesale membership clubs.

Insurance Options for Uninsured Individuals

Not everyone is covered by a group health insurance plan. For many decades, these uninsured people were forced to bear the cost of healthcare on their own. But that has changed.

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 17.7% of gross domestic product (GDP), the Affordable Care Act (ACA) 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. According to government data, roughly 23 million Americans are taking advantage of health insurance under the ACA, according to the most recent set of numbers from 2019.

Under the Obama administration, people who remained uninsured under the ACA were required to pay a health insurance mandate. This was repealed by the Trump administration, which stated it penalized people unnecessarily.

Example of Group Health Insurance

United Healthcare, a division of UnitedHealth Group (UHC), is one of the nation's largest health insurers. It offers a buffet of group health insurance options for all types of businesses. Include are medical plans and specialty, supplemental plans, such as dental, vision, and pharmacy.

Small business plans are available in most states for companies with 1 to 99 employees. In addition to its proprietary plans, United Healthcare offers federally-sponsored marketplace options—Small Business Health Options (SHOP)— for small businesses. In exchange, some employers qualify for the temporary Small Business Tax Credit of up to 50%.

Midsize businesses, with between 100 and 2,999 employees, have various options available, including bundles. Large businesses, with 3,000 or more employees, qualify as national accounts, which have more services and healthcare features, including the ability to customize plan offerings.

Group Health FAQs

What Is a Group Health Plan?

Group health plans are employer- or group-sponsored plans that provide healthcare to members and their families. The most common type of group health plan is group health insurance, which is health insurance extended to members, such as employees of a company or members of an organization.

What Is a Group Health Cooperative?

A group health cooperative, also known as mutual insurance, is a health insurance plan owned by the insured members. Insurance is offered at a reduced cost, and what they collect from members is based on claims paid. The cost of care is spread out across the insured population.

How Many Employees Do You Need to Qualify for Group Health Insurance?

Many group health insurers offer plans to companies with one or more employees. The type of plans available, however, may vary according to the size of the business. For example, United Healthcare provides various plans for small businesses with 1-99 employees, midsize businesses with 100-2,999, and large employers with 3,000 or more employees.

What Are Group Health Insurance Benefits?

Group health insurance plans offer medical coverage to members of an organization or employees of a company. They may also provide supplemental health plans—such as dental, vision, and pharmacy—separately or as a bundle. Risk is spread across the insured population, which allows the insurer to charge low premiums. And members enjoy low-cost insurance, which protects them from unexpected costs arising from medical events.

How Much Does Group Health Insurance Cost?

The average group health insurance policy costs a little more than $7,400 for an individual annually, with employers paying approximately 80% and employees paying the difference. Family coverage averaged slightly more than $21,000.

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.

Article Sources

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