What Is Group Health Insurance & How Does It Work?

Nearly 50% of insured Americans receive health insurance coverage through group plans provided by employers, according to 2019 Census data. However, many of them may not have thought much about how exactly this group health insurance works.

Group health insurance provides many benefits, but when your insurance plan is tied directly to your employment, you risk a sudden loss of health coverage should your job situation change. In 2017, 22% of uninsured Americans reported losing their health insurance due to job loss or change in employment status.

Whether you recently started a new job and want to learn more about how your new group coverage works, you already have group coverage and want to know more about it, or you just lost or quit your job and worry you’ve lost health insurance coverage, this guide can help you understand the ins and outs of group health insurance.

Group health insurance is a type of health insurance plan that provides coverage to a group of members, usually employees of a company or members of an organization. This type of insurance is a significant benefit that many employers offer to their workers. It not only helps employees by providing them with health coverage but also benefits employers by attracting and retaining talent. Here’s a detailed look at what group health insurance is, how it works, and its various aspects.

Understanding Group Health Insurance

Group health insurance is a single policy issued to a group, typically an employer or an organization, which provides health coverage to its members. These plans are generally more affordable than individual health insurance plans due to the risk pool being spread across many individuals. Employers often subsidize a significant portion of the premium, making it a cost-effective option for employees.

Key Features of Group Health Insurance

  1. Coverage for Employees and Their Families: Group health insurance plans often extend coverage to employees’ spouses, children, and sometimes other dependents. This comprehensive coverage is a major attraction for employees.
  2. Lower Premiums: Due to the risk being distributed across a larger group, the premiums for group health insurance are typically lower than those for individual plans. Employers often negotiate better rates with insurers due to the higher number of insured individuals.
  3. Guaranteed Issue: Group health insurance is usually guaranteed issue, meaning that employees cannot be denied coverage based on pre-existing conditions. This is a significant advantage over individual plans.
  4. Employer Contributions: Employers typically pay a substantial portion of the insurance premiums, which reduces the financial burden on employees. Some employers also offer Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs) to help employees manage out-of-pocket costs.
  5. Standardized Coverage: Group plans offer standardized coverage, ensuring that all employees receive the same benefits. This uniformity simplifies the administration of the plan and ensures equity among employees.

How Group Health Insurance Works

  1. Selection of a Plan: Employers select a group health insurance plan based on the needs of their workforce and the cost. They often work with insurance brokers or directly with insurance companies to choose the best plan.
  2. Enrollment: Once a plan is selected, employees are given the opportunity to enroll during an open enrollment period. New employees can typically enroll when they are hired. During this period, employees can add dependents and choose specific coverage options if the plan offers flexibility.
  3. Premium Payment: The premium for the group health insurance plan is shared between the employer and the employees. The employer usually pays a large portion, and the remainder is deducted from employees’ paychecks. This payroll deduction can often be made pre-tax, providing tax advantages to employees.
  4. Utilization of Benefits: Once enrolled, employees can use their insurance to access medical services. They receive an insurance card from the insurer, which they present when visiting healthcare providers. The insurance plan covers a portion of the medical costs as outlined in the policy, and employees are responsible for co-pays, deductibles, and any uncovered expenses.
  5. Claims Process: When an employee receives medical care, the healthcare provider submits a claim to the insurance company. The insurer then processes the claim and pays the provider directly for the covered services. If there are any additional costs that the insurance does not cover, the employee receives a bill for the remaining amount.

Types of Group Health Insurance Plans

  1. Health Maintenance Organization (HMO): HMO plans require members to use a network of doctors and hospitals. They need a primary care physician’s (PCP) referral to see specialists. HMOs generally have lower premiums and out-of-pocket costs but offer less flexibility in choosing healthcare providers.
  2. Preferred Provider Organization (PPO): PPO plans offer more flexibility in choosing healthcare providers and do not require referrals for specialists. They have a network of preferred providers, but members can see out-of-network doctors at a higher cost. PPOs usually have higher premiums compared to HMOs.
  3. Point of Service (POS): POS plans combine features of HMOs and PPOs. Members need a referral from their PCP to see a specialist (like an HMO), but they can also see out-of-network providers at a higher cost (like a PPO).
  4. Exclusive Provider Organization (EPO): EPO plans require members to use the plan’s network of doctors and hospitals, except in emergencies. Unlike HMOs, referrals are not needed to see specialists. EPOs offer lower premiums and out-of-pocket costs but have less flexibility.

Benefits of Group Health Insurance

  1. Cost Savings: Group health insurance typically costs less than individual health insurance plans due to the risk spreading among a large group of people. Employers also often subsidize premiums, further reducing costs for employees.
  2. Tax Advantages: Employer contributions towards group health insurance premiums are tax-deductible as a business expense. Employees can also benefit from pre-tax payroll deductions, reducing their taxable income.
  3. Attraction and Retention of Employees: Offering group health insurance is a valuable benefit that can help attract and retain skilled employees. It demonstrates that the employer values the well-being of their staff.
  4. Comprehensive Coverage: Group plans often provide comprehensive coverage, including preventive care, mental health services, and prescription drugs, which might be more expensive or harder to obtain with individual plans.
  5. Reduced Administrative Burden: Group health insurance plans are easier to manage administratively. Employers handle much of the paperwork and interaction with the insurance company, simplifying the process for employees.

Challenges of Group Health Insurance

  1. Cost for Employers: While beneficial, providing group health insurance can be a significant expense for employers, particularly small businesses. Balancing the cost with the need to offer competitive benefits is a common challenge.
  2. Limited Choices for Employees: Employees have limited choice in selecting the insurance plan, as the employer decides which plans to offer. This might not meet the specific needs of all employees.
  3. Dependent Coverage Costs: While group plans cover dependents, the cost of adding family members to a plan can be high. Employers may not cover these costs fully, leaving employees to pay the difference.
  4. Plan Changes: Insurance plans and coverage options can change annually, which can lead to disruptions in care if an employee’s preferred doctors or hospitals are no longer in-network.

The Future of Group Health Insurance

The landscape of group health insurance is continually evolving. With the rise of remote work and the gig economy, traditional employment models are changing. Employers are looking for more flexible and customizable health insurance options to meet the diverse needs of their workforce. Additionally, advancements in technology are enabling more efficient administration of benefits and better integration of health data to improve care and reduce costs.


Group health insurance is a cornerstone of employee benefits in the United States, providing essential health coverage to millions of workers and their families. It offers numerous advantages, including cost savings, comprehensive coverage, and tax benefits. However, it also presents challenges, particularly in terms of cost and flexibility. As the workforce continues to evolve, so too will the structure and offerings of group health insurance plans, ensuring they remain a valuable and relevant benefit for both employers and employees.

What Is Group Health Insurance and How Does It Work?

Group health insurance—sometimes called employer-based coverage—is a type of health insurance plan offered by an employer of a member organization. Members of a group health insurance plan usually receive coverage at a lower cost because the risk to the insurer is distributed across multiple members.

Under the Affordable Care Act (ACA), businesses with 50 or more full-time employees must provide health insurance to full-time employees and dependents under the age of 26 or pay a fee. Insurers are also required to provide group coverage to organizations with as few as two employees. Some states allow self-employed individuals to qualify for group coverage plans as well.

Group health insurance plans are selected and purchased by companies or organizations and then offered to employees. In most states, a group insurance plan is required to have a 70% participation rate, though some states’ minimum rate is higher or lower.

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