Group Health Insurance

Group health insurance is coverage an employer offers to eligible employees, typically along with their dependents. Employers usually pay part of the premium or all of it. Employees pay a fixed amount through payroll deductions, if necessary, for premiums, as well as out-of-pocket costs like deductibles and copays. Rules and options vary by employer size, state and plan type. Federal requirements may apply once a business reaches a certain headcount.

Employer-sponsored health insurance (ESI) is the largest source of health coverage for Americans under age 65. A poll by the U.S. Chamber of Commerce in 2022 found that 96% of employees consider health insurance important. It is a major factor in employee retention and satisfaction.

What Is Group Health Insurance?

Group health insurance provides employees and their families with dependable health coverage using a cost-sharing and risk-sharing model. Individual health insurance, in contrast, is insurance that a person obtains on their own.

A business can purchase insurance from an insurance company or self-fund the coverage and have it administered by a third party. Requirements may vary by state, especially for small businesses.

Group health plans can provide different features and benefits. Dental and vision coverage are commonly included or offered as options. Some plans offer additional options, or riders, for things like maternity care, critical illness and behavioral health. Employees may receive rewards for healthy behaviors such as annual physicals and flu shots.

It’s important for employers to understand what matters most to their employees and shape health plans to meet the needs of both the employees and the business.

Who Is Eligible for Group Health Insurance?

In general, employers determine the eligibility factors for group health coverage, although the Affordable Care Act (ACA) sets certain conditions. Factors may include:

Average weekly hours. Employee eligibility typically requires that workers be full-time, meaning they work an average of 30 hours per week. Employers are not required to offer health insurance to part-time employees, but many choose to.
Waiting periods. Coverage may not begin until the employee has been with the company for a certain period of time. Under the ACA, waiting periods cannot exceed 90 days.
Dependents. Spouses and children are usually eligible for coverage under the employee’s plan. A child can remain on their parent’s insurance until the age of 26, a requirement of the ACA.

What Do Employers and Employees Usually Pay?

Group health insurance is a cost-sharing/risk-sharing model, with both employers and employees bearing a portion of the cost. Employers typically pay the lion’s share of the premium, making the insurance more affordable for employees, but employees are usually responsible for a number of expenses, including:

Premium. The employee’s share is deducted from their pay, usually pre-tax.
Deductibles. Some group plans require the employee to pay a certain out-of-pocket amount each year.
Copays/coinsurance. Copays are flat fees collected by a healthcare provider. Coinsurance, typically for certain procedures, is usually presented as a percentage of the cost.
Non-network and uncovered costs. Employees may pay more if they see an out-of-network provider. Uncovered costs usually include things like elective and cosmetic procedures.
Prescriptions. Generic medications may be 100% covered, but employees may pay for brand-name or specialty medications.
FSA contributions. An employer may offer flexible spending accounts to help employees cover some out-of-pocket health costs.

What Does the ACA Require for Some Employers?

When it went into effect in 2014, the Affordable Care Act (ACA) created several employer mandates in the interest of providing more Americans with healthcare coverage. The mandates vary by the size of the workforce.

A business designated as an “applicable large employer” or ALE, is required to provide group health insurance. An ALE is any business with 50 or more full-time or full-time-equivalent employees during the prior calendar year. The IRS explains how to make that determination, noting that a business may not be an ALE every year.

ALEs are subject to significant penalties, known as employer shared responsibility payments, for noncompliance with the ACA. The penalties, calculated per employee, are indexed to inflation.

What Administrative Work Comes With a Group Health Plan?

Group health insurance administration includes deadlines, details and reporting, which can be a burden on HR personnel and benefits administrators. Tasks include:

Annual open enrollment periods. Employees must receive timely notices and plan documents in order to make their selections by certain deadlines.
Special enrollments. Coverage terms change with a change in family status, such as birth, adoption, divorce or death.
Eligibility tracking. Average weekly hours, employment status and duration of waiting periods.
Payroll deductions. Benefits staff must coordinate with payroll staff.
Employees separating from the company. Continued coverage under ERISA (Early Retirement Income Security Act) and COBRA must be appropriately administered.
Annual reporting. The ACA requires all employers that provide self-funded health coverage to file an annual return.

Frequently Asked Questions

Is group health insurance the same as employer-sponsored health insurance?

Group health insurance is a type of employer-sponsored insurance that provides coverage to a group of employees. “Group health insurance" emphasizes the collective nature of the coverage, while “employer-sponsored insurance” highlights that it is employer-provided.

Is a small business required to offer group health insurance?

The Affordable Care Act (ACA) does not require businesses with fewer than 50 employees to offer group health insurance. States’ rules and requirements vary significantly, however. In some states, small businesses may become eligible for tax incentives if they offer insurance.

Can employees keep group coverage after leaving a job?

Continuation of coverage, commonly known as COBRA, can keep an employee covered temporarily after leaving a job because of a qualifying event such as a layoff or other life transition. Employers with 20 or more employees that offer group coverage are required to offer COBRA. The employee typically pays the full premium and participation is voluntary.

Can an employer offer different health insurance options to different employee groups?

An employer can offer different coverage options based on legitimate business reasons, and not because of pre-existing conditions or demographics. Legitimate reasons may include full-time vs. part-time, employees who work in other locations and employees with different lengths of service.