Group vs. individual insurance: Which is right for you?

Learn about the contrast between group vs. individual insurance, including average premium costs and deductibles. Below, we explore their pros and cons, eligibility criteria, and factors to consider when choosing the best option for your business

Choosing the right health insurance option can impact both employers and employees. Group and individual insurance offer different levels of cost, flexibility, and coverage. Group plans are employer-sponsored and provide a structured option, while individual plans allow employees to select their own coverage.

This article compares group and individual insurance, outlining key differences, eligibility rules, and factors to consider when deciding which option works best.

What is group health insurance?

Group health insurance is a single policy that provides coverage to employees and, in some cases, family coverage for their dependents. Employers typically offer it as part of a benefits package, making it a common option for workplace coverage, and often include significant employer contributions towards the premium. 

Not all companies have to provide health insurance, but those classified as Applicable Large Employers (ALEs) under the Affordable Care Act must offer affordable coverage to at least 95% of full-time employees and their dependents. However, many businesses, regardless of size, choose to offer group plans for cost-sharing and predictability.

The cost-effectiveness of group plans is often linked to risk pooling, where the health risks of a large group are spread out.

How it works

Employers select an insurance carrier and offer one or more plans to employees. Employees can enroll during the open enrollment period or qualify for a special enrollment period if they experience a qualifying life event. The level of employer contributions can influence employee participation rates. 

With these plans, the employer and employee share the cost of insurance premiums, with employees typically paying their portion pre-tax. The average premium costs for group plans can be attractive due to the larger risk pool. In most cases, at least 70% of eligible employees must enroll for the employer to offer a group plan.

Pros and cons of group health insurance

What is individual health insurance?

Individual health insurance is coverage individuals purchase directly for themselves and their families. This type of insurance is popular with people who are self-employed, don't receive benefits through work, or want a plan different from what their employer offers. These plans are often available through the health insurance marketplace.

It’s also common among employees who receive reimbursements for individual plans through an Individual Coverage Health Reimbursement Arrangement (ICHRA), which some employers use as a more flexible, cost-conscious alternative to group coverage. The availability and pricing of these plans can be subject to location-based pricing.

How it works

Individuals can buy plans through the federal or state health insurance marketplace or directly from insurance companies or brokers. Plan options vary by location, and income-based subsidies may be available to lower monthly premiums. The specific deductibles and coverage details will vary by plan.

Once enrolled, policyholders pay the full premium themselves unless they qualify for financial assistance. They can change coverage only during the annual open enrollment period or after a qualifying life event that triggers a special enrollment period.

It's also important to note that prior to the Affordable Care Act, pre-existing conditions could impact eligibility or cost, but current regulations offer more protection.

Pros and cons of individual health insurance

How does group insurance differ from individual insurance?

Both group and individual health insurance provide essential coverage, but they differ in key areas like cost, eligibility, and flexibility. The concept of a risk pool significantly impacts the cost structure of group plans.

Cost

Employers typically subsidize group health insurance, making premiums more affordable for employees. This affordability is often a result of a larger risk pool.

However, Kaiser Family Foundation data reveals the average annual cost for employer-sponsored family coverage has significantly increased, jumping 24% to $25,572 between 2019 and 2024.

In contrast, the policyholder generally pays for individual health insurance alone, though cost-saving subsidies such as the premium tax credit can reduce monthly costs. The average premium costs for individual plans can be influenced by factors like age and location-based pricing.

While group insurance costs have steadily increased, individual plan premiums have remained more stable, with competitive pricing and more subsidy opportunities under the Affordable Care Act. 

This affordability trend in the individual market is further highlighted by recent Thatch research, indicating that 64% of small businesses are considering ICHRAs as a potentially more cost-effective alternative to traditional group health plans.

Eligibility

Group health insurance is only available to employees of companies or organizations that offer it. Some employers extend coverage to dependents and part-time workers, but policies vary. 

Individual insurance is open to anyone, with no employer requirement. Since the Affordable Care Act was passed, pre-existing conditions generally do not prevent individuals from obtaining coverage.

Government subsidies may be available based on income, making coverage more accessible for those who qualify. The availability of plans and their pricing can also be subject to location-based pricing.

Coverage options

With group insurance, employees must choose from the plans their employer provides. While many find these options sufficient, they may not always match individual health needs. 

Individual plans offer more choices, allowing policyholders to select coverage based on personal preferences, budget, and medical needs. This includes the freedom to choose plans with specific deductibles, add-ons known as riders, or expanded family coverage.

Administrative responsibility

In a group plan, the employer — or their benefits broker — handles plan selection, enrollment, and contributions, reducing the burden on employees.

Individual policyholders, on the other hand, are responsible for researching, selecting, and managing their own coverage. This includes renewing plans and applying for government subsidies if eligible. 

However, those with individual policies through an HRA will have support from their HRA administrator, who helps guide them through plan selection and reimbursement processes.

Plan customization

Group plans often have set benefits with limited ability to adjust coverage. Some employers offer optional riders like dental, vision, or life insurance, but choices remain tied to the employer’s offerings. The deductibles and other cost-sharing features are typically standardized across the group.

Individual insurance allows more flexibility to add or adjust benefits, such as purchasing separate dental and vision coverage or selecting a plan with preferred deductible and copay structures.

What should you consider when choosing between group and individual insurance?

Both employers and employees need to weigh several factors when deciding between group and individual insurance. They include cost, deductibles, coverage needs, and the administrative requirements of each option.

From the employer’s perspective: 

• Cost management: Employers that offer ICHRAs set a fixed contribution amount, which helps in budgeting and controlling healthcare costs. Group insurance can be more affordable due to risk pooling, but they have seen extremely high renewal increases over the last few years.

• Employee retention: Employees of companies that offer ICHRAs can choose insurance plans that best suit their needs and get more personalized choices, potentially leading to higher satisfaction and retention.

• Administrative burden: Managing a group plan requires administrative efforts that can be time-consuming. Individual coverage plans, particularly through an Individual Coverage Health Reimbursement Arrangement (ICHRA), reduce the administrative burden on employers as they do not have to manage a group plan.

From the employee’s perspective: 

• Coverage flexibility: Individual coverage is more flexible, offering more plan choices and the ability to tailor coverage to personal health and budget needs. Group insurance plans often provide limited coverage options.

• Personalized plans: Employees can select individual insurance that is tailored to their specific health needs, unlike group insurance, which often offers a one-size-fits-all solution. They can also choose plans that best address any pre-existing conditions.

• Portability: Individual plans remain with you even if you change jobs, providing consistent coverage. You will need to be mindful of the open enrollment period when making changes.

ICHRA and QSEHRA: Bridging the gap

As businesses explore alternatives to traditional group insurance, both ICHRAs and QSEHRAs (Qualified Small Employer Health Reimbursement Arrangements) have emerged as viable solutions. 

These options allow employers to offer flexible health benefits while allowing employees to choose individual plans that meet their needs, often purchased through the marketplace.

Introduction to ICHRA 

An ICHRA allows employers of all sizes to reimburse employees for individual health insurance premiums. Employees select their own plans, providing more personalized coverage options that may include things like family coverage and dental. The average premium costs and deductibles will vary based on the plan chosen.

Employers can set fixed reimbursement amounts based on factors like age or family size, making it easier to manage healthcare costs.

Introduction to QSEHRA 

A QSEHRA is designed for businesses with fewer than 50 employees. It offers similar reimbursement options as ICHRA but with annual limits — $5,850 for individuals and $11,800 for families in 2024. This cap makes it a cost-effective choice for small businesses while still providing employees with flexibility in their healthcare choices on the marketplace.

Benefits and considerations

Health Reimbursement Arrangements (HRAs), including ICHRA and QSEHRA, offer distinct benefits and considerations for both employers and employees when compared to traditional group health insurance.

Benefits:

• Flexibility: Employees can choose individual plans that best suit their needs, potentially including add-ons or specific riders

• Cost control: Employers can set fixed reimbursement amounts

• Tax advantages: Reimbursements are tax-free for employees

• Simple administration: Less administrative burden compared to group plans

Considerations:

• Reimbursement limits: ICHRA offers higher reimbursement caps than QSEHRA

• Eligibility: Both plans have specific requirements that may limit participation

• Employee confusion: Employees may find the individual plan options on the marketplace more complex than group coverage

By offering an ICHRA or a QSEHRA, businesses can bridge the gap between traditional group insurance and individual plans, giving employees more control over their healthcare while keeping costs manageable.

Choosing the right insurance for your business

Employers choosing between group vs. individual health insurance should consider cost control, administrative ease, and the flexibility of coverage. While group plans can be affordable thanks to risk pooling, individual options like ICHRAs offer more budget control and customizable benefits.

If you’re ready to explore smart insurance solutions for your business, contact Thatch today to find out how we can help you offer flexible and cost-effective health plans to your employees.

FAQ

Can employees choose their health insurance with group insurance?

No, group insurance plans typically offer a limited selection of plans chosen by the employer. Unlike with individual insurance options or an ICHRA, employees may not have much flexibility to select the coverage that best suits their individual needs, such as preferred deductibles or dental coverage.

Can an employee switch between individual and group insurance?

Employees can switch between group and individual insurance, but they typically need to do so during the open enrollment period for either option. If they qualify for a special enrollment period due to a qualifying life event, they may be able to make the change outside of regular enrollment windows.

Are there any tax advantages to offering ICHRA compared to group insurance?

Yes, both ICHRA and group insurance offer tax benefits to employers, but ICHRA provides a more customizable approach. Employers can deduct their ICHRA contributions, and employees can receive reimbursements tax-free. 

On the other hand, group insurance premiums are generally shared between employers and employees and may not have the same level of flexibility.

Can ICHRA and group insurance plans be combined?

No, employees enrolled in a group insurance plan cannot use ICHRA for the same coverage. ICHRA is designed for employees who choose individual health insurance plans, offering more flexibility than group insurance, where coverage is determined by the employer.