Six Types of Group Health Insurance for a Small Business

Wednesday, April 10, 2024 12:41 Posted by Admin

When it comes to choosing the best type of group health insurance for your small business and your employees, there’s a lot to unpack. Not all group health plans are created equal, and they vary significantly in how they’re purchased and their essential features and options.

Let’s take a look at the most common types of group health plans available, the pros and cons of each for your business and employees, and the most important questions to ask your benefits advisor to get the best health insurance plan at the best cost possible.

Six Popular Types of Small Business Group Health Insurance

Six types of group plans are most common in the health insurance industry. Here’s a quick snapshot of the popular health insurance types and a couple of thoughts on the pros and cons of each type.

Fully-Insured Plans

Fully-insured group health insurance is a traditional plan where the insurance company assumes the healthcare cost risks and charges small businesses an annual premium. Insurance premiums will vary depending on the age, size and health of the group, an employer’s claims history, your industry and employee occupations, benefits selected and level of coverage.

Self-Funded Plans

Self-funded group health insurance puts the lion’s share of employee health costs more on the employer than fully-insured plans. As a result, the risk is higher, but the premiums can be lower.

While most often used by larger groups, small businesses can take advantage with less risk by choosing a self-funded plan with stop-loss insurance to reduce the impact of any catastrophic claims.

Level-Funded Plans

Unlike traditional health insurance plans with annual premiums, level-funded insurance typically uses census information to set a small group’s monthly premium. This rate is revised annually depending on the company’s claims and group performance.

Health Maintenance Organization (HMO)

HMO group members pay monthly premiums to access a selected and controlled network of healthcare providers and locations. As a result, HMOs tend to be more affordable, but using physicians and facilities outside the specified network can substantially increase group costs.

Preferred Provider Organization (PPO)

PPO health insurance plans are similar to HMOs with more flexibility built-in. PPO group members have the option to use physicians and facilities outside of the core network. But, these visits incur higher co-pays and extra service costs in return. It’s a careful balancing act.

High-Deductible Health Plan (HDHP) with a Savings Option (HDHP/SO)

HDHP attempts to reduce the cost of premiums with higher deductibles, in effect a user-pay scenario. This makes it a good healthcare insurance choice for employees who use fewer medical services.

Combining high-deductible health insurance plans with a savings option like a health savings account (HSA) is a good choice for some small businesses. Employees can make tax-free contributions to pay for healthcare costs ranging from co-pays to other medical services, making them a helpful retirement savings strategy. Employers can also make contributions on behalf of employees by adding Health Reimbursement Accounts (HRAs).

Which Group Health Plans Are Most Popular?

Kaiser Family Foundation (KFF) research, shows the popularity of some health plans among small businesses, defined as between three to 199 employees. It illustrates trends in plan choices as well.

In 2021, among small businesses providing health insurance, 45% offered PPOs (+6% from 2016), 23% provided HDHP/SO (-3%), 17% chose POS (-1%), while 13% offered HMD (-3%).

Health Insurance Costs Vary for Companies and Employees

As a small business owner, it’s up to you to decide how much coverage to offer at a cost you and your employees can best afford. The average price of most plans depends on a mix of factors, including your location, the plan features, deductibles and options, your industry, and the age of your employees.

According to KFF research, in 2021, the contributions by the average US small business were:

• Individuals: 83% of premiums or $540.41 per month
• Families: 63% of premiums or $1,044.75 monthly.

In a recent Taylor Benefits blog post, we covered the percentage of health insurance costs paid by employers (87%) and employees (13%). Group health insurance is among the higher operational costs for a small business, so wise advice on health plan pricing is critical.

Small Business Health Insurance Tips

While the federal government doesn’t require small businesses with fewer than 50 employees to offer health insurance, most savvy employers understand the competitive benefits and value of providing health insurance for employees.

However, there are a couple of things to remember when it comes to group health insurance and small businesses:

• health insurance must be equally offered to all full-time employees
• ACA requires a small business health insurance plan to include basic features such as emergency services, prescription drugs, pregnancy, maternity and newborn care, outpatient care and more
• ACA and most states require small businesses to contribute at least 50% of premiums, although that varies with some jurisdictions
• most states require a minimum level of employee participation.

Depending on where your small business is located, we can quickly answer your questions about any federal or special state requirements regarding group health insurance.

Let Us Help You Plan for the Best

Taylor Benefits Insurance Agency specializes in helping business owners and HR managers find the right insurance package for your employees. When choosing the right type of group health insurance for your large or small business, we’ll help you navigate your way through the maze of insurance companies, plans, and features available at no additional cost.

We’re easy to reach for an objective assessment of your options or a no-obligation proposal. Just call us at 1-800-903-6066 or connect on our Contact page.