Group vs. individual insurance: Key differences in coverage, cost, eligibility, and benefits explained

As a business owner or key decision-maker in company health care coverage, understanding the distinctions between group and individual insurance is crucial to making informed decisions. Group insurance and individual insurance cater to different needs, circumstances, and budgets. Each solution offers unique advantages depending on your organization’s needs.

In this blog post, we contrast between group vs. individual insurance, exploring their respective pros and cons, eligibility criteria, and factors to consider when choosing between them. 

What is group health insurance?

Group insurance, typically provided by employers or associations, covers a collective group of people under a single policy. Often, full-time employees at a company are offered group health insurance as part of their benefits package. Depending on the company policy and insurance, employees' spouses or dependents can also qualify for coverage. 

Employers aren't necessarily required to offer health coverage to their employees. Under the Affordable Care Act, Applicable Large Employers (ALEs) (typically employers with more than 50 full-time employees on average in the prior calendar year) must offer affordable coverage to 95% of their employees and dependents. Many ALEs, and even employers that don't qualify as ALEs, choose to offer group coverage for its predictability.

How group health insurance works

The group health insurance selection process begins when a company picks an insurance carrier to offer an insurance plan, or suite of plans, to the company's employees.

There are times when group health insurance could be advantageous for an employer and employee from a cost-savings perspective. It's important to note that this varies significantly on a state-by-state basis and for each group policy. The employee pays for their portion of the coverage pre-tax, and the employer might also cover a portion of the monthly insurance premiums as a benefit.   

Employers can only offer group health insurance if 70% or more of the employees enroll.

Employees can only enroll in a group health plan during open enrollment, or outside open enrollment if they qualify for a special enrollment period. Employers tend to plan their health benefits offering around open enrollment."

What is individual insurance?

As the name suggests, individual insurance policies are purchased by individuals to cover themselves and any dependents.

Someone might enroll in individual insurance if they:

• Are self-employed 

• Don’t like the policies their employer offers

• Don’t have a full-time job that offers health benefits   

• Have an employer who offers ICHRA 

Individual insurance plans are purchased directly from insurers or through brokers.

How individual health insurance works

The process of getting individual insurance coverage isn’t too different from the process an employer goes through. However, in this case, it's the individual searching for coverage on their own. 

Depending on their needs and location, individuals may shop for a plan directly from a carrier, or through a state-based or federally facilitated marketplace. Depending on income and age, they might qualify for government assistance, like Medicaid, Medicare, or CHIPs.

Access here our ICHRA glossary breakdown.

Once someone settles on a plan, they’ll pay the monthly premium costs. Individual health insurance can only be changed during open enrollment or if the policyholder is eligible to enroll or re-enroll during a special enrollment period. 

How does group insurance differ from individual insurance?

Group and individual insurance differ in terms of plan selection experience, cost, and coverage.

Coverage comparison

Employees tend to find group coverage more limiting because employers have already pre-selected a plan or suite of plans to offer. On the other hand, employees shopping for individual plans can choose from any number of health insurance companies to find a plan that works for them depending on their needs and budget.

Many employees will be happy with the coverage from a group insurance policy, but the choice might feel limited for some. If they could shop the marketplace or directly from a carrier, an employee could pick exactly what coverage they needed, offering more flexibility. Individual insurance plans may offer more personalized coverage options

Cost Analysis

Individual health insurance used to be much more expensive than group policies. However, with the passage of the Affordable Care Act, the gulf between the cost of individual and group health care policies has narrowed and continues to shrink.

Generally, it used to be the case that individual coverage was more expensive, but we've seen dramatic growth in the individual market in recent years, and insurance carriers are offering more plans at competitive prices.

Additionally, individuals might qualify for subsidized health insurance based on income or age. The monthly costs of premiums could be less than an employer-sponsored healthcare plan.

Individual health insurance premiums have decreased by an average of 5% per year over the past five years, whereas employer-sponsored family health coverage has increased by 47% since 2013 and 22% over the last five years, according to KFF (Kaiser Family Foundation). This discrepancy raises important considerations about the current state of health insurance costs.

Eligibility Criteria

When it comes to eligibility, both group and individual insurance have distinct criteria. 

Group Insurance Eligibility 

Group health insurance typically requires you to be an employee of an organization that offers such benefits. Often, employees need to wait for an enrollment period or a set waiting period before coverage begins. Additionally, some employers may offer coverage to part-time employees or extend benefits to family members. However, the choice is largely dependent on the employer's specific policies and the insurance plan they choose. Smaller employers with fewer than 50 employees might qualify for options like the Small Business Health Options Program (SHOP). 

Individual Insurance Eligibility 

For individual health insurance, virtually anyone can apply. In some cases—depending on age, income, and family size—an individual may be able to apply for government subsidies (the Premium Tax Credit) to lower monthly premiums. You may also need to meet residency and citizenship requirements to qualify for these government subsidies. Typically, there’s no waiting period for individual insurance, but you do need to enroll during the open enrollment period unless you qualify for a special enrollment period related to a qualifying life event such as marriage, the birth of a child, or the loss of job-related coverage.

State and geographic differences

State and geographic location play a significant role in shaping your insurance options, whether it’s group or individual coverage. These differences can impact several key aspects of your healthcare plan: 

• Regulations and Mandates: Many states can impose additional regulations on insurance providers, which can lead to variation in the types of coverage and benefits available. For example, some states require insurers to cover specific treatments or services, such as fertility treatments or chiropractic care, which may not be mandatory in other states.

• Cost of Premiums: The cost of premiums can vary widely based on where you live. Factors such as state insurance laws, the cost of living, and the level of healthcare competition in the area influence how much you’ll pay for group or individual insurance. Urban areas with higher costs of living might see higher premiums compared to rural regions.

• Provider Networks: Geographic location impacts the availability and range of provider networks. In urban areas, you might have access to a larger network of doctors and hospitals, while rural areas could have more limited choices. Both group and individual plans adjust their networks based on local availability, potentially affecting your access to care.

• Access to Subsidies: Many individuals may be able to access a federal tax credit to offset the premium cost for an individual plan.. States that have expanded Medicaid or offer additional state-based subsidies can reduce the overall cost of individual plans, making them more affordable for certain income brackets.

• Impact of Local Policies: State and local healthcare initiatives, such as wellness programs and preventive care incentives, can influence the benefits associated with both group and individual plans. These programs aim to improve public health and can provide additional resources or discounts for policyholders.

Application process

The process of securing group health insurance vs. individual health insurance is largely similar. However, who is involved in the process varies. 

In group insurance, employers  — or their benefits broker — shop for policies and make agreements with healthcare providers before offering them to employees. 

In individual insurance, the individual shops the policies on the marketplace or directly from a carrier and makes their selection. 

Add-ons

Group insurance typically offers a few standard plans for employees to choose from, but in some cases, it may offer add-ons such as life insurance, vision, and dental.

In individual insurance, the policyholder has much more flexibility when it comes to add-ons. They can create custom coverage, including dental and vision, that’s not limited by an employer’s selections.

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

From the Employer’s Perspective: 

• Cost Management: Employers that offer individual coverage health reimbursement arrangements (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: 

• Broader Coverage: Individual coverage is more flexible. Group insurance plans often provide limited coverage options.

• Personalized Plans: Individual insurance allows for more personalized and flexible options tailored to personal needs. 

• Portability: Individual plans remain with you even if you change jobs, providing consistent coverage.

ICHRA: The best of both worlds

In the debate of group vs. individual insurance, both have their fair share of benefits and drawbacks. 

If you’re searching for the affordability of group insurance but with the customizability of an individual policy, ICHRA might be the right fit for your team. 

ICHRA (Individual Coverage Health Reimbursement Arrangement) empowers employees to select their own healthcare coverage but with the benefit of using employer pre-tax dollars. 

Thatch sources insurance directly from carriers, with transparent and accurate pricing that enables employees to get a tailored healthcare solution without the expenses that come with individual insurance.

Learn how Thatch can get you better health benefits with less money.