Group Health Care Insurance

When it comes to health care coverage, there are really only two options:  individual and group health care plans.  In this article, we're going to talk about the group coverage options that might be offered at large companies, and how small businesses can join together to offer group health care to their employees too.

Starting in October 2013, the Patient Protection and Affordable Care Act, also known as Obamacare, provides a new marketplace where individuals, families and small businesses can go to enjoy the benefits of group health care coverage.  The protections offered under this law include:

  • Creation of the Health Insurance Marketplace, which provides a way for individuals, families, and small businesses to obtain coverage
  • Insurance companies are now required to cover people with pre-existing health conditions
  • Elimination of lifetime and annual dollar limits for essential health benefits
  • It's illegal for health insurance companies to arbitrarily cancel insurance because someone gets sick
  • Protection of the policyholder's choice of doctors
  • Coverage for young adults under 26
  • Preventive care at no cost
  • Insurance companies are now held accountable for rate increases

Advantages of Group Health Insurance

The biggest advantage of group health insurance is lower cost.  The savings are derived from the ability to spread the overhead expenses to administer a program over a larger number of participants.

Along with the insurance payments for medical services, there is back office work such as the processing of claims, collection of premiums, and telephone support.  The more individuals covered in a plan, the easier it is to spread the cost of this support across participants.  This is what makes group coverage so attractive to small businesses. 
 
With larger groups, the total value of the account to the insurance carrier is greater.  This means the plan is able to offer value-added benefits such as newsletters or specialized medical programs such as well care.  This means larger groups can leverage their size to extract more value from their insurance providers.

Group Plans

There are two ways to view group plans.  One way is through the lens of the business owner, the second is through the eyes of the participant.  Small businesses are constantly balancing their ability to control costs and retain employees by offering competitive benefits.  The plans available today provide individuals and small businesses with the opportunity to participate in group coverage in the following ways:

  • Small Employers:  insurance companies can group together certain industries to form a larger membership base.  These smaller employers can then turn around and provide employees with benefits that are otherwise reserved for larger companies.
  • Associations / Affiliations:  individuals can also take advantage of the lower premiums associated with affiliations or associations.  Examples include credit card companies, church groups or parishioners, or clubs such as AAA and AARP.
  • Fully-Insured Groups: typically, this is reserved for mid-to-large businesses, whereby the company arranges for health care coverage on behalf of their employees.
  • Self-Funding Groups:  reserved for larger companies, in this arrangement the company pays the actual cost of providing health and medical services to its employees.  The health insurance company provides telephone and claims processing support, and makes money through a program administration fee.

Insurance Coverage

Within a given plan, there are often different types of health care coverage that can be offered to employees.  Examples found in the marketplace today include indemnity plans, preferred provider organizations, and health maintenance organizations.

  • Indemnity Plans:  sometimes referred to as a fee-for-service plan, this arrangement offers the employees the most flexibility in choosing their primary health care provider or medical doctor.  These are usually the most expensive plans offered because the insurance company pays fees as determined by the doctor.
  • Preferred Provider Organizations:  supply participants with a network of hospitals and doctors; however, preferred provider plans may also allow policyholders to seek medical services outside of the network.  When this happens, deductibles, copayment, and coinsurance amounts may increase.
  • Health Maintenance Organizations:  perhaps the least expensive group health care coverage a company can provide is a health maintenance organization or HMO.  The fees charged by doctors and hospitals are negotiated ahead of time to provide participants with a health care network.  The well care programs offered by HMOs are oftentimes the most comprehensive offered.

There are several variations of the above offerings, but most plans will contain the basic features described for the above three coverage types.  For example, indemnity plans might have a cap on what they will pay a doctor based on a schedule of "usual and customary" fees.

Comparing Group Health Insurance

It's important for policyholders and companies to understand the cost-sharing commitment within each plan.  Typically, out of pocket costs are limited to:

  • Monthly Premiums:  these are the monthly payments associated with the actual cost of providing health insurance.  Employers may decide to have their employees share in the monthly cost of the company's health care premiums.
  • Copayments:  usually paid by the participant at the time that services are rendered. These are usually nominal fees that range from $10 to $25.  Copayments are considered an out-of-pocket cost for employees.
  • Coinsurance:  when the employee and employer share in the cost of providing a service, this is called coinsurance.  This out-of-pocket cost usually applies when the employee decides they want to seek services outside of the network of doctors.
  • Deductibles:  frequently the largest out-of-pocket cost an employee pays when seeking medical care.  Deductibles are usually satisfied (paid by employees or participants) each year before the insurance company begins to pay for the cost of care.

Saving on Health Insurance Premiums

Finally, there are several ways both individuals and small businesses can lower the cost of their health insurance premiums.  The most important of which is to comparison shop.

Always seek quotations from more than one insurance company.  When comparing quotes, it's important to understand both the coverage provided as well as the cost-sharing arrangements.

Deductibles and Cost Sharing

Business owners can help to control their cost of group health care insurance by transferring some of those expenses to employees.  This is accomplished by increasing the employee's out-of-pocket costs through higher deductibles, copayments, and coinsurance.  A second method is more direct, and involves sharing in the cost of the monthly health care premiums with employees.

Tax Incentives

Finally, there may be several income tax incentives, or benefits, that business owners may derive when providing health insurance to employees.  Premiums paid are usually considered a business expense, and are fully deductible from federal income taxes.

Health Care Accounts or Health Savings Accounts provide employees with a way to set money aside using regular payroll deductions.  This money is placed into an account on a before-tax basis, thereby providing employees with a way to pay for their out-of-pocket expenses on a before-tax basis.  Unfortunately, this tax benefit comes at a cost.  Participants are usually required to deplete this account or lose the money (use it, or lose it arrangement) each calendar year.


About the Author - Group Health Care Insurance (Last Reviewed on May 31, 2016)