As you evaluate small business health insurance options, it is common to compare employer group health insurance and individual health insurance. What is group health insurance and how does it work for small businesses? In this article, we’ll answer seven common questions about how group health insurance works.
Q: What is Group Health Insurance Coverage?
Group health insurance coverage is a type of health policy that is purchased by an employer and is offered to eligible employees of the company, and to eligible family members of employees. Currently, the majority of non-elderly Americans (56%) have group health insurance coverage through their employer, or the employer of a family member (source).
With group health insurance, the employer selects the plan (or plans) to offer to employees. The premium cost is usually split between the employer and employee, and there is a minimum percentage rate the employer must contribute to the premiums.
Q: Do Small Businesses Have to Offer Group Health Insurance?
No. Under the ACA, small businesses (with fewer than 50 full time equivalent employees) are not required to offer health insurance to employees.
Q: Where Can Small Businesses Purchase Group Health Insurance?
Small businesses may purchase insurance plans through:
A licensed health insurance agent or broker
Online, through a private website
Online, through the public SHOP Marketplace
Tip: If you are looking to claim the Small Business Health Insurance Tax Credit, you must purchase a SHOP-based plan.
Q: Are All Group Health Insurance Policies the Same?
No. With group health insurance, the employer selects the carrier, type of plan, and terms of coverage for the company. Additionally, the laws regarding how coverage can be issued to large groups are different than those for small groups, and the way that premium rates are determined is also different. We’ll get into these details next.
Q: What are the Coverage Requirements for Small Business Plans?
Under the Affordable Care Act (aka the ACA or Obamacare), small group health insurance plans must meet certain benchmarks, or coverage levels. The coverage levels are meant to standardize plan levels and are: platinum, gold, silver, and bronze. Each metal level tier plan is designed to provide the same coverage level to an enrollee. Read more about the metallic tiers here.
Under the ACA, small group health insurance plans must also cover Essential Health Benefits (EHB) and meet other plan design reforms such as no lifetime or annual limits.
In addition to new ACA requirements, there are several other guidelines that apply to group health insurance plans including ERISA, COBRA, HIPAA, and IRS rules.
Q: How are Premium Rates Determined for Small Business Plans?
The ACA changed how premium rates are determined for small groups. Currently, small group insurance plans are rated as modified community rating.
With modified community rating, health plans may vary the community rate based on limited factors such as age, geography or smoker status; and not the individual medical history of each employee.
In 2014, the average cost to cover an employee with group health insurance was $6,025/year for a single and $16,834/year for a family. According to reports by the Kaiser Family Foundation, costs have nearly tripled in the last fifteen years.
Q: Who Regulates Small Group Health Insurance Plans?
States regulate fully insured group plans however there are certain federal regulations all group health plans must follow including ERISA, HIPAA, COBRA, and the ACA.
Each state has a department of insurance responsible for the regulation of insurance regulations. Generally, the state department of insurance has authority over how the insurance industry conducts business within a state, and licenses and regulates the rates and practices of insurance companies, agents and brokers in the state.
Q: Is Group Health Insurance the Only Option for Small Businesses?
No. Small employers are not mandated by the ACA to offer traditional group health insurance, which opens the door to more affordable health insurance alternatives. The most popular alternative is individual health insurance. Employees purchase coverage on their own, and the small business can continue to contribute through a premium reimbursement plan.
As you evaluate your health insurance options, it is important to understand how group health insurance works. And, as the cost and regulations around group health insurance increase, it’s no surprise that more and more small businesses are transitioning employees to individual health insurance.
What questions do you have about small business health insurance? Leave a question or comment below!