What are the advantages of Group Health Insurance?

Group Health Insurance

April 4, 2019

Group Health Insurance

In order to list the advantages of group health insurance, we must first distinguish the types of health insurance that are available. Health Insurance can be purchased as either an individual, or as a group. Let’s discuss these two options.

Individual health insurance plans are available in every state via the affordable care act. These plans are usually available thru either an individual state’s health insurance exchange, or more likely thru healthcare.gov.  In addition, those who are aged 65 and over or have been enrolled in Social Security Disability are eligible for individual health insurance thru Medicare Supplements or Medicare Advantage plans. Since individuals decide on their own which plan(s) to choose, they are called the individual marketplace.

Group Health Insurance plans are written for the employees of a company. The company sponsors a group health insurance plan for their employees and may also contribute towards the cost.  There is usually a minimum level of participation and hours worked to qualify for coverage. Since the small business or group must decide to offer this type of plan, it is called group health insurance.

Now that we know the differences between individual and group health insurance plans, what are the advantages of a group health insurance plan? Why would someone want a group health insurance plan and not an individual one?

There are four (4) main benefits to a group health plan vs individual health plan: Lower Premiums, larger networks, more plan options, and tax deductibility.

Group Health Insurance plans offer lower premiums

on average than individual market plans. A small business is made up of many individuals and dependents being offered health insurance, and the small business market is made up of hundreds of thousands of small businesses. Therefor the risk for this pool of businesses is reduced because the pool is made up of a huge group of members. According to the Small Business Administration, the spread of risk across a group is a fundamental theory of insurance. High costs of one insured person have a smaller effect in a larger pool—in other words, more people are paying to support the few who use the benefits of being covered to their full extent.

Group Health Insurance offers larger networks than the individual marketplace

In NY as an example, almost all of the networks available for small business health insurance are not available in the individual marketplace. Networks like the Oxford Freedom or Empire BCBS EPO/PPO or Oscar Circle Plus are only available to small groups.

Group Health Insurance offers more plan options

A PPO plan for example is not available in NY for an individual, however you can get one if you have a small group health insurance plan.

Group Health Insurance offers tax deductibility

There are a couple of ways a group health insurance plan benefits from tax deductibility. First, premiums paid by a company for a small group health plan is a deductible expense. It is also not considered income to the employee, so they are also not taxed personally for this benefit. Second,  a company can offer a Section 125 Premium Only Plan. This can exempt any portion of the premium payable by the employee from taxation as well. An individual marketplace plan is not tax deductible, and any premiums paid are made with after tax dollars.

If given the option, a group is usually always better off offering a group health insurance plan to their employees. Not only is it a better option than leaving the employees to find the coverage on their own, in a low unemployment market having a strong benefit offering is a great way to attract and retain quality employees.