As a business owner, you may be considering offering employer-provided health insurance to your employees. Because of its continued popularity, it’s no wonder that group health insurance remains a common health benefit option in today’s workforce. But in the complex healthcare market, how do you know if it’s truly right for your organization?
Before making a decision, employers need to consider the advantages and disadvantages of group health insurance. Depending on the type of health insurance you choose, there are specific benefit and plan limitations that may not be right for your business.
What is employer-sponsored health insurance?
Employer-sponsored health insurance is an insurance plan offered by a company to its employees. Traditionally, this has been in the form of group health insurance. A group health plan typically provides health insurance coverage to its members at a lower cost since the risk to insurers is spread across the group. To maintain healthcare coverage, employees enrolled in the plan pay a monthly premium, generally as a pre-tax paycheck deduction.
The most common types of group health insurance policies found on the health insurance marketplace are:
- Health maintenance organization (HMO)
- Preferred provider organization (PPO)
- Exclusive provider organization (EPO)
These plans usually have a deductible (employers can choose between a low or high deductible) that employees need to meet before their coinsurance is applied. They also have an out-of-pocket maximum to be reached before the insurance company pays 100% of all covered healthcare costs for the rest of the plan year.
All group health insurance plans have varying differences, such as healthcare cost. But they typically share the following characteristics:
- Group health plans generally require a 70% participation rate
- Group members have the choice of enrolling in or declining employer coverage
- Group health premiums are split between the employer and their employees
- Family members and dependents can be added to group plans at an additional cost
The Affordable Care Act’s employer mandate requires all applicable large employers (ALEs), with at least 50 full-time equivalent employees (FTEs) to offer affordable, minimum essential health insurance coverage to their staff or face a tax penalty.
Group health insurance is appealing for these employers due to its accessibility, stability, and ability to meet the mandate. However, some small businesses also comfortably offer a group health insurance plan, typically through a small group health plan that’s specifically designed for small employers.
What are the pros of group health insurance?
Group insurance is pretty common, so there’s a good chance that employees have heard of it before. According to the Kaiser Family Foundation (KFF), around 49% of the U.S. has employer-sponsored health insurance. This familiarity can make it easier to entice employees with a benefit they recognize as valuable. A particular valuable benefit that employees like is the cost-sharing aspect of group health plans by the employer paying a portion of their premium.
Another major advantage of group medical coverage is the potential for tax benefits. For an employer, money paid toward monthly employee premiums is usually tax-deductible. For employees, premiums are paid with pre-tax dollars, which can reduce their taxable income. Additionally. Eligible small businesses may be able to qualify for the small business healthcare tax credit.
Aids in retention
A significant plus of health insurance benefits is that it boosts morale and aids retention. In fact, a Society for Human Resource Management (SHRM) survey found that 56% of U.S. adults with employer-sponsored health benefits said that whether or not they like their health coverage is a key factor in deciding to stay at their current job.
Employees who have health insurance can access preventative services and medical insurance that may help them avoid serious health issues in the future. And, if problems occur, a group health insurance plan protects employees from costly financial debt they may incur without insurance.
What are the cons of group health insurance?
Increase of cost
A big disadvantage of group health insurance is its cost. The average price of group coverage has increased in recent years, and businesses and employees alike have seen increases in premiums and deductibles.
With these increases, 87% of large employers feel group health insurance costs will become unsustainable within the next decade, leaving many businesses looking towards cheaper methods of providing benefits, such as with a health reimbursement arrangement (HRA).
Lack of flexibility
Group health insurance also lacks flexibility. Employees on a group plan might be grateful for a health benefit, but may feel like they didn’t have another choice. The plan might be an excellent fit for one employee, but could offer limited resources for others.
Because group insurance is chosen by the employer, employees don’t have a say in what network they’ll be on, the deductible they’ll need to meet, or the premium they’ll have to pay.
The lack of control and customization of group health plans doesn’t make it as appealing to many individuals. Some employees may even need supplemental health insurance to compensate for coverage not included in their company’s plan, such as dental and vision, which can make your health benefit not feel as well-rounded.
Alternatives to employer-sponsored group health insurance
As a business owner, it’s understandable that you want to take care of your employees. But group health insurance may not be the best way to do it.
An Alegeus survey found that 41% of consumers think health coverage shouldn’t be tied to employment. These days, group plans might not be as attractive as you think, especially in diverse and inclusive workforces.
If you want to move away from group health insurance, or reduce the cost of a group plan, you should consider coverage through an integrated HRA, a stand-alone HRA, or a health insurance stipend. These budget-friendly benefits can help you cover your employees’ healthcare costs while providing flexibility and customization.
We’ll dive into each of these options below to help you learn more about how they work.
An HRA is an employer-funded health benefit designed to reimburse employees tax-free for 200+ out-of-pocket medical expenses and individual health insurance premiums. Many businesses use HRAs instead of group insurance because of the tax advantages, budget control, and greater opportunity for customization.
Stand-alone HRAs aren’t linked to a group health insurance plan. Instead, employers reimburse employees for their health insurance purchased on the individual market rather than buying it for them with a group plan.
HRAs can often empower your employees because it gives them greater control over their health and creates a more personalized health benefit.
QSEHRAs are only for employers with less than 50 employees, have annual contribution limits, and, can be coordinated with premium tax credits. An ICHRA, on the other hand, is for employers of all sizes, has no contribution limits, and requires employees to have a qualifying form of individual health insurance.
No matter which you choose, stand-alone HRAs are becoming more popular for health coverage in today’s workforce for employers who want a health benefit that is both flexible and cost-effective.
If you’re determined to keep your group health plan, then there is a way to supplement it. An integrated HRA, also known as a group coverage HRA (GCHRA), is a tax-free reimbursement benefit for employers of any size that integrates with group health insurance.
Employees must be enrolled in the employer’s group health plan to participate in a GCHRA. If they are, they’re eligible to get reimbursed for their deductibles, coinsurance, copayments, and other qualified medical expenses. However, they can’t get reimbursed for their group health insurance premiums.
Businesses typically layer an integrated HRA alongside a high deductible health plan (HDHP) for even more cost savings, but it isn’t required. Similar to an ICHRA, GCHRAs have no limit on employer allowance contributions.
Also, an employer can establish their own unique rules regarding the benefit’s deductibles, cost-sharing, explanation of benefits, and employee classes. These customizations help employers take greater charge of their budget and boost their group health plan while still providing a quality employee health benefit.
Taxable health stipends
Finally, there’s a health insurance stipend. With a stipend, an employer offers a fixed amount of money to their employees to help them pay for an individual health insurance plan and other medical expenses. The amount is typically added to the employees’ paychecks as taxable income on a regular basis, such as weekly, monthly, or annually.
Stipends are flexible, so employers can give an unlimited amount of money to their employees for healthcare without having to foot the bill for restrictive group health insurance. They also aren’t subject to compliance regulations, so they’re typically easier to administer.
However, because they aren’t subject to regulations, employees can use their stipend to buy whatever they want. So, while you may want your employees to use the money on health insurance or medical expenses, they aren’t required to do so.
Implementing group health insurance as part of your employee benefits package can be a comfortable choice for your employees who are already familiar with group plans. However, group health insurance isn't without its disadvantages, so it's essential to weigh the pros and cons before making a decision.
If you think the cons outweigh the pros for your organization, an HRA or health stipend may be just what you need. Get started with one of these personalized health benefits by scheduling a call with PeopleKeep today!
This article was originally published on January 24, 2020. It was last updated on March 18, 2022.