Individual health insurance vs. group health insurance

Written by: Elizabeth Walker
Published on April 21, 2023.

A robust benefits package with a comprehensive health benefit is essential for attracting and retaining top talent in today’s workforce. But if you’re offering health benefits for the first time, figuring out where to start can be overwhelming.

You’ve probably heard of group health insurance and individual health insurance in your research. But what is the difference between them, and how do they compare?

In this article, we’ll compare group and individual health insurance, including how they work and how you can leverage a health reimbursement arrangement (HRA) with each option.

Learn more about flexible and affordable health insurance options for small businesses in our guide

How does group health insurance work?

Group health insurance, sometimes called employer-sponsored coverage or group coverage, is a type of health policy purchased by an employer and offered to eligible employees and their dependents. Currently, almost 159 million1 Americans have employer-sponsored health insurance.

If you choose to offer group coverage, you can exclude your part-time employees from participating in the benefit. However, if you decide to include some of your part-timers, you must make it available to all your part-time staff.

Also, due to the Affordable Care Act (ACA), employees with pre-existing health conditions can’t be denied coverage or charged a higher premium, nor will their medical conditions affect the group’s eligibility.

All group health insurance plans typically work in the following way:

  • Employers select one or more plans to offer their employees
  • Plans generally require a 70% participation rate among employees
  • Group members have the choice of enrolling in or declining employer coverage
  • Group health premiums are split between the employer and participating employees to reduce costs by spreading the risk among the group
  • Family members and dependents can be added to group plans at an additional cost
  • Enrolled employees pay a monthly premium to maintain medical coverage, generally on a pre-tax basis from their paycheck

There are important terms you’ll need to know when it comes to group plans. Depending on your chosen group plan, your employees will have a high, low, or zero deductible. They must pay their deductible before their coinsurance kicks in and reach their out-of-pocket maximum before their health insurer will cover 100% of their medical costs for the rest of the plan year.

How does individual health insurance work?

Individual health insurance, sometimes called employee-sponsored coverage, is a health insurance policy that individuals purchase on their own without assistance from an employer or a federal government program, like Medicare or Medicaid. Individual plans include single health coverage policies as well as family coverage.

Individuals can purchase their medical plan from a public or private health exchange. The most notable public exchange is the federal health insurance marketplace, but state-based marketplaces are also public exchanges. Private exchanges involve purchasing an individual plan directly from health insurance companies or with the help of an insurance agent or broker.

Premium tax credits and other cost-saving subsidies are available on public exchanges for those who qualify based on income. The policy will stay with the individual employee until they cancel it—it’s not tied to employment.

Other than these differences, individual health insurance plans work similarly to group plans. Like group policies, insurers can’t deny health insurance coverage for pre-existing conditions. Policyholders make monthly premium payments to maintain coverage and pay a deductible, copay, and coinsurance, depending on their plan coverage level. They will also have an out-of-pocket maximum.

How group and individual insurance compare

To keep it simple, the chart below highlights a few ways that group health insurance compares to individual health insurance for employers and employees.


Group health insurance plan

Individual health insurance plan

Does coverage continue when an employee’s job is lost or changed?

It depends. If you lose your job, have your hours reduced, or get laid off, you may be able to continue coverage for a period of time if you can’t find a job immediately2.

Yes. Since employees purchase their own policy, it isn't tied to employment.

Does the employee get any choice in their medical providers?

It depends on the plan(s) their employer offers and what providers are in-network for those plans.

It depends on their chosen individual policy and what providers are in-network under that plan.

If there are certain providers employees want to see, they should check to make sure their individual medical insurance has them in-network before enrolling.

Is health insurance coverage allowed for those with pre-existing conditions?



Who purchases and owns the plan?



Are premiums tax-deductible?

For the employer: Yes

For the employee: No

For the employer: N/A unless premiums are reimbursed through an HRA

For the employee: If an employer doesn’t offer an HRA, employees may be able to deduct premiums on their tax return if it was paid for after taxes.

Availability of premium tax credits?


Yes, through a public health exchange.

If the employer offers an HRA, employees may need to coordinate their premium tax credit with their HRA or choose between the two.

How the average cost of group and individual health insurance policies compare

In 2022, the average premium costs for individual and group health insurance plans were as follows:

Individual health insurance premiums costs

Group health insurance premiums costs

Self-only coverage



Family coverage



Individual health plans are not only less expensive on average than group health plans, but they also help employers save on administration time when employees purchase and manage their own plans.

How HRAs work with individual and group health insurance

Whether you choose to go with a group plan or have your employees get an individual policy, there’s an HRA you can leverage to help your workers save on their medical expenses.

HRAs allow you to reimburse your employees, tax-free, for qualifying out-of-pocket costs and, sometimes, individual health insurance premiums.

The way HRAs work is simple. You give your employees a monthly allowance to spend on insurance premiums and other qualifying medical expenses. After they submit proof of purchase and you approve the expense, you reimburse them up to their allowance amount. Because HRAs aren’t accounts, any unused money stays with you at the end of the year.

The type of HRA your organization is eligible for depends on if your employees are covered by a group or individual plan. Below we’ll review three popular HRAs for both coverage options: the qualified small employer HRA (QSEHRA), the individual coverage HRA (ICHRA), and the integrated HRA.

Qualified small employer HRA (QSEHRA)

A QSEHRA is an excellent option for employers with fewer than 50 full-time equivalent employees (FTEs) who don’t have a group health plan. To get tax-free reimbursements, employees must have a health insurance policy with minimum essential coverage (MEC). Their individual insurance monthly premiums and out-of-pocket medical expenses are eligible for reimbursement, helping them save on healthcare costs.

The QSEHRA has annual contribution limits set by the IRS, so employers can only give their employees so much allowance. However, you can offer less than the annual limit if you're on a budget.

Regarding eligibility, you must offer the QSEHRA to all your full-time W-2 employees. Part-time employees can participate if you wish. However, compliance regulations mandate that you provide them the same allowance amount as your full-time employees.

Individual coverage HRA (ICHRA)

The ICHRA is similar to the QSHERA, but it has extra flexibility. It’s for organizations of all sizes and has no contribution limits, so it works for every employer’s budget. With an ICHRA, you can easily reimburse employees for their individual health insurance premiums and other qualified medical expenses.

Unlike the QSEHRA, the ICHRA allows employers to further customize their benefits based on 11 employee classes. Only employees with an individual health plan can participate in an ICHRA—any employee covered by a spouse’s employer plan or participating in a healthcare sharing ministry won’t be able to participate in the benefit.

However, if you want to offer one employee class a group plan and another class an ICHRA, you can do so. But any employee covered by a spouse’s employer plan or participating in a healthcare sharing ministry won’t be able to participate in the benefit.

Another important note—if you’re an applicable large employer (ALE), you can leverage the ICHRA to satisfy the employer mandate.

Integrated HRA

If you want to supplement your business’s traditional group health plan and an HRA for additional coverage, then an integrated HRA is right for you. An integrated HRA, also known as a group coverage HRA (GCHRA), is for employers of any size with group health insurance. Only employees who opt into your employer-sponsored insurance plan can participate in the GCHRA.

Like the QSEHRA and the ICHRA, you offer a monthly allowance for your employees to pay for any eligible expense. Eligible expenses include those not fully covered in your group plan, like deductibles and other qualified medical expenses. However, an employee’s group plan premiums aren’t eligible for reimbursement.

Many employers integrate their GCHRA with a high-deductible health plan (HDHP) to control their budget. However, any group health plan can work with a GCHRA. For example, if you choose a low-deductible health plan, you can pair it with a GCHRA to help your employees save even more on their health expenses.

Because integrated HRAs have no minimum or maximum allowance limits and are also customizable by employee classes, they’re flexible enough to meet every organization’s needs.


If you’re in the middle of making a decision about which type of health benefit to offer your employees, it’s important to understand the differences between group coverage and individual coverage. While employer-sponsored health insurance continues to be the popular choice for organizations, more modern approaches to health benefits, like HRAs, are quickly gaining popularity.

By allowing your employees to choose their own health plan and reimbursing them for their expenses with a personalized HRA, you’ll give them flexibility and better control over their medical decisions.

Schedule a call with one of our personalized benefits advisors today to learn more about how an HRA can work for your organization

This article was originally published on January 27, 2015. It was last updated on April 21, 2023.



Originally published on April 21, 2023. Last updated April 21, 2023.


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