What Is Group Health Insurance, and How Does It Work? 2025

What Is Group Health Insurance?

Group health insurance refers to the health plans businesses and organizations offer to employees or members. It is offered by both employers and other organizations, such as unions, professional societies and fraternal organizations. To take advantage of the health coverage, you must work for the company or be a member of the organization offering it.

Group health insurance covers nearly 153 million Americans.

How Does Group Health Insurance Work?

Group health insurance is when an employer or organization sponsors or purchases a health plan or several health plans to benefit employees or members. You can sign up for the health plan when you start work or join the group or during an open enrollment period. You can choose to add your spouse and dependents to the group health plan at an additional cost, and you also have the right to decline coverage.

Health plans vary, as companies select healthcare coverages that suit their budgets and the needs of team members. However, your group health insurance premium—what you pay for health insurance—may cost less than buying coverage on your own because you are splitting the group health insurance cost with your employer.

Along with the lower cost of healthcare coverage, you also have less of the mechanics around your care to deal with. Your employer typically takes your monthly premium out of your paycheck and pays the health insurer. When you use your health plan, a provider bills the insurance company, which pays the bill, and you pay any remaining out-of-pocket costs.

Types of Group Health Plans

The type of group insurance plans you can access depends on the plan or plans your employer purchases from health insurance companies. A group insurance policy for employees typically is one-size-fits-all, which might not work for all employees.

Employers typically offer these health plans:

Health Maintenance Organization (HMO)

You must choose a primary care physician (PCP) that contracts with the HMO for your healthcare. You also must go to your PCP for referrals to specialists. HMOs focus on preventive care and wellness.

Preferred Provider Organization (PPO)

With this type of plan, you don’t have to choose a PCP, and you have more choices of doctors and health facilities. You don’t have to seek referrals to see a specialist. You also can see health providers outside your network, but you may pay more out-of-pocket costs.

Exclusive Provider Organization (EPO)

Like an HMO, you have to see providers within a network, except for emergencies. However, you don’t have to choose a PCP or seek referrals before seeing specialists.

Point of Service (POS)

You will notice this plan is like combining an HMO and a PPO. You must select a PCP from the network, but you can go to health providers outside the network at a higher cost.

If the group health benefits don’t suit you, many companies also offer employees health reimbursement accounts (HRAs) and health savings accounts (HSAs). HRAs are funded by your employer, and you and your employer can contribute to an HSA to pay for qualified healthcare expenses.

How Group Health Insurance Is Structured

There are two ways companies provide you with group health insurance: a self-insured employer plan and a fully insured employer plan.

Self-Insured Employer Plan

With this plan, your company collects premiums from employees through payroll deduction and pays all medical claims. Your employer may operate the insurance program or hire an insurance company to be the administrator. The health program is regulated by the federal government.

Fully Insured Employer Plan

Under this plan, your employer buys a health plan from an insurance company, which pays your claims in exchange for the premium you pay. Insurance companies fall under state regulations.

Self-insured employer plans are typically run by larger companies.

What Is the Main Advantage of Group Insurance?

Group health insurance provides tax advantages. Your employer can deduct 100% of the premiums it pays on your behalf. The advantage for you comes in paying fewer taxes. Because your premium is paid with pre-tax dollars, it lowers your taxable income, resulting in you paying fewer taxes. It’s a great option, especially for young adults who can no longer stay on their parents' insurance.

You also pay lower premiums for group health insurance because of the large number of people participating in the plan. The group medical insurance scheme spreads the risk across more people, lowering the premium an insurer charges.

Group health insurance coverage also allows you to include family members in one plan.

Why Do Insurers Require a Minimum Number of Employees Participate in a Group Insurance Plan?

Most insurance companies require 70% of eligible employees or members to participate in a group health insurance plan. The larger pool of covered people allows the company to better manage risk. Spreading out the risk helps keep premiums down.

Individual vs. Group Health Insurance

If you’re wondering how to get group health insurance as an individual, check with your employer or an organization you belong to. The only way to buy group health insurance as an individual is through an employer or organization.

Neither individual insurance nor group health insurance is better than the other. A group health policy might not meet your needs. In this case, you can buy an individual policy from an insurer or through the federal HealthCare Marketplace.

Talk to Insurance Professionals

If you still have questions about group health insurance, the insurance professionals at ConsumerShield can help. ConsumerShield believes in making insurance understandable for you. Get in touch today.