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TL;DR
Group Insurance can be an affordable option due to pooled risk but offers limited flexibility and coverage options
HRAs provide flexibility and control, allowing employees to choose their own coverage while benefiting from employer-funded reimbursements for medical expenses
Combining group insurance with HRAs under a hybrid model allows for cost control while offering employees more personalized benefits
Group health insurance is one of the most typical ways employers offer health coverage to their employees. It provides a collective insurance plan with standardized benefits, which can be more affordable for businesses and employees due to pooled risk.
However, as healthcare needs become more varied, employers are increasingly exploring alternatives like Health Reimbursement Arrangements (HRAs), which offer more flexibility and control for employees.
Group insurance works for many, but HRAs are gaining popularity. They offer personalized coverage beyond the one-size-fits-all group plans.
Understanding the pros and cons of both options is essential for employers looking to provide the best healthcare benefits.
What is group health insurance?
Group health insurance is a common form of employer-provided healthcare coverage. It offers standardized benefits to all eligible members under a collective policy, making it more affordable by spreading out the insurer’s risk.
This approach helps businesses negotiate lower health insurance premiums compared to individual plans. However, because the coverage is the same for everyone, group insurance may not fully meet the specific needs of individual employees.
How does group insurance work?
Group insurance works by offering a single health coverage policy to a large number of people through a business or organization. Employers negotiate the policy terms with the insurance providers and select plans for employees to choose from that balance the workforce’s needs with budget constraints.
In group insurance, the policy is called a master policy and covers all eligible employees under a single agreement determined by the employer. With group plans, employees can sign up or switch health insurance during specific times, such as hiring, open enrollment periods, or during qualifying life events.
Employers may also pay a portion of the monthly premiums, making the plans more affordable for employees. While group insurance can reduce expenses, this approach also means each plan’s coverage is limited to the employer’s selection.
Group insurance vs. individual insurance
Group insurance is provided by a business or organization to its employees, while individual insurance is purchased directly by individuals. An employer may choose a group health plan that covers all employees with standardized benefits, such as:
Broad coverage that includes basic medical and preventative care
Lower monthly premiums with higher deductibles
Limited dental and vision coverage
An exclusive network of providers
You can tell if you have group coverage by looking for the group number on your insurance card, which indicates you’re enrolled in the employer's group plan.
In contrast, individual plans cater to specific personal preferences and may have higher out-of-pocket costs. People who opt for this type of insurance often prioritize:
Picking coverage their regular provider accepts
Finding plans with better coverage for specialist visits
Choosing a lower deductible with higher monthly premiums
Adding comprehensive dental or vision coverage not typically included in group plans
Types of group insurance
Group insurance encompasses various types of coverage beyond health insurance, catering to different needs within an organization. Employers often provide additional types to create a comprehensive benefits package.
Common types of group insurance include:
Group life insurance: Provides financial protection to beneficiaries
Group disability insurance: Covers income loss due to illness or injury
Group dental insurance: For routine and preventive dental care
Group vision insurance: Covers eye exams and corrective lenses
While offering different types of group insurance can serve as an attractive perk to attract and retain talent, help businesses remain competitive in the job market, and enhance job satisfaction — its standardized nature means the appeal of group coverage varies for each employee.
Advantages and disadvantages of group insurance
Group insurance can be a cost-effective way for employers to provide health coverage to their employees, but it also has several drawbacks that may limit its appeal. Understanding these pros and cons is essential for making informed decisions about employee benefits.
Advantages of group insurance include:
Lower premiums: Pooled risk across a large group often results in lower premiums than individual plans.
Simplified enrollment: Employers handle the setup, making it easy for employees to enroll without dealing with the complexities of the individual market.
Employer contributions: Companies often cover a portion of the monthly premiums, reducing out-of-pocket costs for employees.
Broad basic coverage: Offers standard benefits such as medical, dental, and preventive care, providing a baseline of protection for most employees.
Disadvantages of group insurance include:
Restricted provider networks: Employees may need to choose from an exclusive list of in-network providers, which might not include their preferred doctors or specialists.
Limited customization: Standardized plans may not meet the specific needs of every employee, offering little flexibility in coverage options.
Higher out-of-pocket costs: Lower monthly premiums are often paired with higher deductibles, meaning employees might pay more upfront before their coverage kicks in.
Potential gaps in coverage: Specialized care, like certain dental procedures or vision treatments, may require out-of-pocket payments (if you don’t have gap health insurance).
Loss of coverage when leaving the company: Employees may lose coverage if they leave the employer, potentially leading to lapses in health insurance coverage.
Group insurance balances cost-effectiveness with limited personalization, making it suitable for many employees. However, others may seek alternatives like Individual Coverage Health Reimbursement Arrangements (ICHRAs) for more tailored options, like Individual Coverage Health Reimbursement Arrangements (ICHRAs).
Why consider HRAs over group insurance
Health Reimbursement Arrangements offer a flexible and cost-effective alternative to group insurance, giving employees more control over their healthcare choices.
HRAs are popular because employees can use employer-allocated funds for co-pays, premiums, and out-of-pocket costs. Unused funds roll over, allowing employees to save for future medical expenses.
Spending from HRAs counts toward deductibles and medical costs, even without meeting the deductible or when a provider doesn’t accept the insurance.
ICHRAs are a specific type of HRA that offer even greater flexibility. While traditional HRAs reimburse a range of medical expenses under a group policy, ICHRAs work with individual health insurance plans.
Since new businesses frequently operate with limited budgets and require flexible employee benefits, ICHRAs can be an ideal healthcare solution for startups to provide health insurance options that scale with the business.
Additionally, employer contributions are tax-deductible, and reimbursements are tax-free to employees. HRAs and ICHRAs enable employers to meet diverse employee needs and offer personalized benefits while managing costs and avoiding the challenges of traditional group insurance.
| HRAs & ICHRAs vs. Traditional Group Insurance | ||
|---|---|---|
| Feature | HRA & ICHRA | Group Plan |
| Customization | Employees can select a plan that aligns with their specific healthcare needs | Employers can better cater to diverse employee needs with this approach |
| Cost control | Set a defined budget for each employee to avoid annual rate hikes | Employer often absorbs the cost of premium increases, often leading to unpredictability |
| Ease of administration | Shift administrative burden to the individual insurance companies | Employer manages the plan, handling enrollment, claims, and provider networks |
| Participation flexibility | Avoid minimum participation requirements | Requires a minimum percentage of employees to enroll to maintain group plan status |
| Employee empowerment | Employees can use leftover funds for other healthcare expenses | Employees are limited to the benefits and coverage selected by the employer |
Combining group insurance and HRAs
Combining group insurance with HRAs creates a hybrid solution that offers core group coverage with the flexibility of additional coverage through HRAs. For instance, a company can provide basic group health insurance for all employees and then fund an HRA to cover out-of-pocket medical expenses or premium costs for more personalized plans.
With this approach, employers can better cater to diverse employee needs while maintaining cost control and ensuring essential coverage.
This hybrid model allows employers to offer comprehensive benefits that appeal to a broader range of employees without the limitations of traditional group insurance.
Group health insurance FAQ
Which is an example of group insurance?
Group insurance includes policies that cover a collective group, typically offered by employers. One example is a company that provides group health insurance to its employees, offering standardized coverage such as doctor visits, emergency care, and preventive screenings.
This model allows employers to negotiate lower premiums for their workforce, benefiting the company and employees by offering affordable coverage.
How does group insurance differ from individual insurance?
The key difference between group and individual insurance lies in the coverage structure and selection process. Group insurance is offered to all eligible members of a group with standardized benefits. Individual insurance allows a person to choose coverage that fits their specific needs.
Group insurance can be more affordable because it spreads risk across a larger pool, but it’s less flexible than individual plans.
What are group policies in insurance?
Group policies in insurance refer to policies that cover a group of individuals under a single contract. A typical example is a health insurance policy provided by an employer, where the employer purchases coverage for all eligible employees and their dependents.
This arrangement allows for cost savings by spreading risk among a larger group but often limits individual coverage choices.
What is the main advantage of group insurance?
The primary advantage of group insurance is its affordability due to the risk pooling. For instance, employees in a group plan might pay lower premiums than they would for an individual plan because the insurer spreads the financial risk across many policyholders.
This makes group insurance a cost-effective option for employers and employees, though it may not address individual health needs as effectively as more customizable alternatives.
Better health benefits for your business
Group insurance provides a cost-effective way for employers to offer healthcare coverage to their employees, with the advantages of lower premiums and simplified enrollment. However, its standardized nature may not fully meet the diverse needs of every individual.
Thatch offers a flexible alternative and positions employers to offer health insurance plans that cater to the specific needs of their workforce. With Thatch, employers can seamlessly explore options like HRAs, giving employees more control over their benefits while maintaining cost efficiency.
Learn about Thatch’s plans and how we can help you find the right balance between group insurance and HRAs.
Ready to explore the flexibility of HRAs for your business? Schedule your free demo with Thatch today to see how our solutions can help you manage costs, offer personalized benefits, and empower your employees.
Jeremy Wolf, former professional athlete, is dedicated to enhancing healthcare access. As Customer Success and Broker Operations Lead at Thatch, Jeremy focuses on providing customers with everything they need to navigate the complex health insurance space.
Learn more about Thatch's teamThis article is for general educational purposes and is not legal advice. The opinions shared here belong to the author and are not official statements from Thatch. For legal and tax questions, please feel free to consult with a qualified professional.
