A good benefits package can be key to keeping your employees happy and avoiding the high costs of employee turnover. A group health insurance plan can be the focal point of your benefit offerings.
What You Need to Know
All group health plans aren’t the same. The one you choose will likely reflect your employees’ needs and your business’s budget.
The average annual premium for an employer-sponsored group plan was $7,188 for single coverage and $20,576 for family coverage,
Obamacare requires businesses with 50 or more employees to provide health insurance or face penalties.
What is Group Health Insurance?
A group health insurance plan is one that covers your employees and, in some cases, their families.
For your employees, a group plan can be appealing because it would likely cost them less than they would pay for an individual policy. Not only would you, as the employer, likely pay a portion of the cost, but the cost of insurance may be lower with a group health insurance plan because the policy is priced based on the risk factors of the entire group. That means the lower costs of insuring healthier employees can help to offset the higher costs of insuring others.
How Does Group Health Insurance Work?
Group plans use a cost-sharing system. In other words, costs are split between the employer and the employees covered under the plan.
What are the Timelines to Offer Group Insurance?
Whenever you hire a new eligible employee, you would give them the opportunity to enroll in the health insurance plan, typically in the weeks after they start. Then, once a year, prior to the renewal of the policy, you would have open enrollment — a period of time in which employees can make changes to their plans.
What are the Timelines for Employees Enrolling in Group Plans?
In addition to enrolling in a group plan when they are hired, employees may also be able to make changes to their plans or add or remove family members when qualifying events occur, such as the birth or adoption of a child, divorce or marriage.
What Kind of Group Health Insurance is Available?
All group health plans aren’t the same. The one you choose will likely reflect your employees’ needs and your business’s budget. Here are some of the more common options:
A fully-insured plan is one in which an insurer writes up a policy for the group and covers all healthcare costs while charging your company an annual premium.
A self-funded plan is one in which you, the employer, cover all health care costs rather than the insurance company. One of the benefits of this type of plan is that it may be more affordable because you are only paying for actual claims as opposed to a premium that is based on an insurer’s projections. However, if your employees file catastrophic claims, you are on the hook for them.
Health maintenance organizations (HMOs) are group plans in which members pay premiums to gain access to a network of healthcare service providers and pre-selected types of services. If employees seek healthcare from someone outside of the network or choose a medical procedure that is not covered, they would have to pay the entire costs themselves.
Preferred provider organizations (PPOs) are similar to HMO plans in that members have access to a network of healthcare providers. However, with PPOs, members can choose providers outside of the network as long as they agree to a higher co-pay or service charge.
A high-deductible health plan (HDHP) is one in which employees pay for all of their healthcare costs until a deductible is reached. At that point, the insurance kicks in. HDHPs have lower premiums, but employees must foot a bigger part of the bill. They are often paired with health savings accounts (HSA), which let employees pay for medical expenses with tax-free dollars.
How Much Does Group Health Insurance Cost?
In 2019, the average annual premium for an employer-sponsored group plan was $7,188 for single coverage and $20,576 for family coverage, according to the Kaiser Family Foundation (KFF). However, with group plans, the costs are typically split between multiple parties.
What Is Group Health Cost Sharing?
One reason group plans tend to be appealing to employees is because of cost sharing, meaning the costs of the premiums are typically split between the employer and the employees. There are a number of ways costs can be split.
Employers May Cover Premiums in Full
With this option, the employer picks up the entire tab. Among small businesses – those between three and 199 employees – 31% of employers paid the entire cost of employee premiums in 2019, according to KFF.
Employers May Pay a Percentage of Health Insurance Premiums
With this option, the employee typically pays a portion of the premiums and the employer picks up the rest. As a small-business owner, you could determine how much in premiums you would want employees to pay. In 2019:
- 45% of employees of small businesses paid between 1% and 25% of the premiums while the employers paid the rest
- 21% of employees of small businesses paid more than 25% but no more than 50% of the premiums
- 3% of employees paid more than 50% of the premiums
Employers May Offer a Standard Plan and an Option to Buy “Better Coverage”
Employers can also offer plans that give employees the best of both worlds, giving them full coverage at an affordable cost, but letting them pay more if they want additional healthcare services. PPO plans are an example of this, as employees can gain access to a network of providers and specialists at one rate and pay more if they want services from providers outside of the network or procedures that are not covered by the standard plan.
Do Small Businesses Have to Offer Group Health Insurance?
Under the Affordable Care Act (ACA), small businesses with less than 50 full-time employees do not have to offer group health insurance. However, Obamacare does require businesses with 50 or more employees to provide health insurance or face penalties.
Highlights
If you’re not sure whether you want to offer your employees group health insurance, consider both the benefits and the drawbacks.
What Are the Tax Implications of Offering Employer-Paid Group Insurance?
However, there are incentives to offer your employees access to group insurance, even if you don’t have to do so by law. If you have 25 or fewer full-time employees, you may be eligible for the Small Business Health Care Tax Credit, which could be worth as much as 50% of the costs you put out for employee premiums. On top of that, health insurance premiums paid by your business are tax deductible.
How Many Businesses Offer Group Health Insurance?
Among small businesses with 50 or fewer employees, 29.8% offered health insurance to their employees in 2018, according to KFF. Among firms with 50 employees or more, the percentage rose to 96.8%.
What Forms of Groups Health Insurance Do Businesses Offer?
PPOs were most common in 2019 with 44% of covered employees being enrolled in one, according to KFF. That was followed by 30% who were enrolled in a high-deductible plan with a savings option and 19% enrolled in an HMO.
What Are Pros and Cons of Group Health Insurance?
If you’re not sure whether you want to offer your employees group health insurance, consider both the benefits and the drawbacks.
The benefits of offering your employees a group plan:
- A good health insurance policy can help you attract and retain top talent. In fact, a 2018 study by the American Institute of CPAs found that 80% of workers would choose a job that offered workplace benefits over a job that offered more pay and no benefits.
- With access to health insurance, your employees are better able to catch potential health problems early, which may prevent absenteeism and poor productivity due to illness at a later time.
- The tax credits you may be eligible for could help to offset some of your other tax expenses.
Drawbacks to consider:
- The costs involved could be prohibitive, depending upon the size of your business. While tax credits could help, you’ll still likely make a significant investment.
- Health insurance isn’t the easiest subject to learn about and stay on top of. You’ll need to be aware of regulations that affect your business, as well as have to stay on top of any administrative duties that come with offering your employees insurance.
What Are Alternatives to Group Health Insurance?
If you don’t think offering access to a group health insurance plan works for you, there are a couple of other options you might consider.
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a benefit in which your employees buy their health insurance elsewhere and you reimburse them for certain medical expenses.
Discount medical programs provide employees with special pricing for healthcare services that is lower than what they would pay on their own.
Next Steps
Offering your employees group insurance could be a good move if you’re hoping to retain workers and keep them healthy while you grow your business. However, make sure you understand the differences between the various options so you can zero in on the best one for you and your team.
