Group health insurance: What is it and how does it work?

What is group health insurance?

Group health insurance is medical coverage for workers, such as company employees or members of an organization or professional association. The insurance includes health benefits, such as hospitalization, and often provides dental and vision coverage. These policies usually cover employees, their partners and their dependents. 

The business typically pays a portion of the premiums, while the employees pay their share of the cost through payroll deductions. 

While health insurance is an important benefit, it’s not cheap. A 2024 report from JPMorgan Chase found the median health insurance payroll burden for businesses with less than $600,000 in annual revenues was nearly 12%; for businesses with more than $2.4 million in revenue it was 7%. The financial services firm also found that among small employers that didn’t offer health insurance, most – 65% – cited cost as the key factor in their decision.

Benefits of group health insurance

Still, there are numerous benefits to group health insurance. 

For employers

• Talent recruitment and retention: Health insurance is one of the most important benefits to workers. Offering group health coverage helps you stay competitive and attract and retain top talent. 
• Productivity: Studies have found that companies that offer health insurance to their employees have higher levels of worker productivity. When employees can get preventative healthcare and medical treatment, they take fewer sick days and are able to be more productive. 
• Tax benefits: Employers can usually deduct what they pay toward employees' premiums, and businesses may also qualify for valuable tax credits. 

For employees

• More affordable coverage: Usually, the employer covers some of the policy's premiums, so the cost of coverage is lower for the worker than if they bought an individual policy. 
• Access to care: With group health insurance, employees can more easily access preventative care and treatments for ongoing health conditions. 
• Reduced financial stress: Medical debt is a significant issue in the U.S. and a leading cause of bankruptcy. By offering group health insurance, you can make healthcare more affordable, reducing your employees' stress levels. 

Types of group health insurance 

As an employer, you can decide what plans or options you want to offer your employees. Typically, businesses provide the following health plans: 

• Health maintenance organization (HMO): An HMO is a provider network of specific doctors, hospitals, and other medical professionals. Under an HMO, employees are only covered if they visit an in-network provider. Workers need referrals to visit a specialist, and they may find that there are limited doctor choices. However, these plans tend to be cheaper than preferred provider networks. 
• Preferred provider network (PPO): A PPO is a health plan with a network of specific doctors, hospitals, and other medical professionals. Unlike an HMO, however, a PPO lets employees see any provider they like, although they pay a lower cost to visit in-network providers. PPOs are often more expensive than HMOs because they give policyholders more flexibility and choice. 

How many employees are required to qualify for group health insurance?

To qualify for group health insurance, a company typically needs to have at least one full-time employee (not counting the owner, partner or family members of the owner). 

Insurance providers usually require a certain percentage of your workforce to enroll in coverage. The required percentage varies by state and insurance provider, but it's usually about 70% of your eligible workforce. For example, say you have 10 full-time employees. To qualify for group health insurance, you'd need to enroll at least seven employees.

If you're a sole proprietor, you won't qualify for group health insurance unless you have employees beyond your partner, spouse or family members. 

Note: The Affordable Care Act requires companies with 50 or more workers to offer group health insurance.

How does group health insurance work?

When a small business owner decides to offer group health insurance benefits, they work with an insurance provider or benefit advisor to select an insurance plan or several plan options. 

The options the business offers its workers depend on the provider, the number of employees, and the employer's budget. 

The employer commits to enrolling a certain number of employees and covering a portion of their premiums. 

How much does group health insurance cost?

The cost of group health insurance varies significantly by location, the number of employees you enroll and the selected insurance provider. KFF, a non-profit organization focused on research and communications on health policy, reported in 2024 that the average annual premiums for employer-sponsored coverage were $8,951 for single-person coverage and $25,572 for family coverage.

However, the employer rarely covers the entire cost. In most cases, the employee also contributes. On average, workers contribute 16% of the premium amount for single coverage and 25% of the premium for family coverage. 

Although the cost can seem steep, the benefits can be worth the expense – and many employers find it necessary to remain competitive. 

"The employer should take into account what other employers are offering to employees and attempt to offer similar programs and establish a similar contribution approach," says Perry Braun, president and CEO of the Benefit Advisors Network, a group of independent benefit advisors and consultants." Employers are competing for labor and should attempt to offer a program that is consistent with other employers in the marketplace."

Group health insurance companies 

What health insurance options are available to your business depends on your state and company size. Some of the best-known group health insurance providers include: 

UnitedHealthcare 

UnitedHealthcare is the largest health insurance provider in the country by membership. It has a provider network that includes some 7,000 hospitals and more than 1.3 million physicians and other healthcare professionals.

Elevance Health 

Elevance Health is one of the largest health insurers in the country, serving 14 states. At the end of 2024, the insurer had about 45.7 million medical members.  

Humana

Humana has approximately 17 million members in its various medical benefit plans. It offers services across the country.

What is SHOP? 

There are different ways to get group health insurance. You can call up one of the health insurers that offer group coverage. Or you can work with a benefits adviser who can guide you in the process.

There is also the Small Business Health Operations Program (SHOP), an effort run by the federal government’s healthcare marketplace, HealthCare.gov, for small business owners who want to offer health or dental coverage to their workers. Typically, the program is limited to businesses with between one and 50 employees. The SHOP program gives you more control and flexibility as a business owner; you can decide what you'll pay toward workers' premiums, what plans they can choose from and how long employees must wait until they're eligible for coverage. 

You can use the online tool at Healthcare.gov to find out if your business is eligible for SHOP. 

There are also group health cooperatives, which are non-profit, managed healthcare organizations. Small businesses that qualify can offer health insurance through the cooperative, often at a competitive rate.

What our expert says

Q: How important is it to have benefits that match up well against other small businesses?

Perry Braun President and CEO of the Benefit Advisors Network.

"The employer should take into account what other employers are offering to employees and attempt to offer similar programs and establish a similar contribution approach. Employers are competing for labor and should attempt to offer a program that is consistent with other employers in the marketplace."