As a small business owner, offering health insurance can be one of the most valuable ways to attract and retain talented employees. The two primary options—group health insurance and individual plans—each offer distinct advantages and challenges.
So, which is better for your business? The answer depends on your budget, workforce size, and the benefits you want to provide. To help you make an informed decision, let’s break down the pros, cons, and key considerations for both group and individual health insurance plans.
Group Health Insurance for Small Businesses
Group health insurance is a plan that business owners provide directly to their employees. As the employer, you select an insurance carrier and offer one or two health insurance plans for your team to join.
Both you and your employees share the cost of monthly premiums, but the more people who enroll in the plan, the lower the overall cost per person becomes. This is known as risk-pooling—where costs are spread across a large group to make premiums more affordable.
It's also worth noting that if your business has 50 or more full-time equivalent employees, the Affordable Care Act mandates that you must provide health insurance options to your team.
Pros of Group Health Insurance
Lower Premium Costs: Again, the more employees who enroll in your program, the lower the premiums become for everyone. This makes coverage more affordable than individual plans in many cases. Plus, by sharing the costs with your employees, your business saves.
More Access: Group health care plans often feature wider networks of providers, meaning your employees have better coverage and access to care.
Tax Benefits: Providing group health insurance opens your business up to a variety of tax benefits, including the Small Business Health Care Tax Credit.
Simple Enrollment: Through well-defined open enrollment deadlines, most employees find enrolling in group health insurance plans more straightforward than individual plans.
Family Coverage: Oftentimes, group plans provide coverage not just for employees, but for their families as well, making them an attractive benefit for workers with dependents.
Attractive Employee Benefit: Offering comprehensive health coverage helps attract and retain quality talent, especially when competing for skilled workers.
Cons of Group Health Insurance
Lack of Customization: Employees are restricted to the one or two plan options you select, which may not meet everyone's individual needs or preferences. What works well for one employee might not be ideal for another, particularly if your workforce is diverse in age, health status, or family situation.
Administrative Responsibility: The smooth enrollment and management of these plans must be maintained by the employers. Oftentimes, this requires adding someone to your staff or reaching out to an external employee benefits advisor. However, this position may be able to use their specific knowledge to help you cut costs in other areas.
Potentially Higher Upfront Costs: The employer must contribute to premium payments, regardless of profitability or cash flow challenges, creating a fixed expense.
Participation Requirements: Insurance carriers often require a minimum number of employees to enroll, which can be challenging for very small businesses.
Individual Health Insurance Plans
Individual health insurance is purchased by the employee—not by your business. These plans are ideal for people who are self-employed or work for companies that don’t offer traditional benefits.
While this might sound like it removes you from the equation entirely, many employers are finding creative ways to support employees in obtaining individual coverage—particularly through arrangements like Individual Coverage Health Reimbursement Arrangements (ICHRAs).
Pros of Individual Health Plans
Flexibility and Customization: By only having to worry about themselves, employees can choose plans that perfectly match their personal needs, preferences, and budget.
No Participation Requirements: Unlike with group health insurance, you don’t need a minimum number of participants in order to enroll in a plan.
Portability: Coverage stays with the employee if they change jobs, providing continuity of care and eliminating gaps in coverage during transitions. While group plans offer some portability, there is more red tape and complications to go through.
Cost Control for Employers: Through structures like ICHRAs, you can set a fixed contribution amount, making budgeting more predictable and controllable.
Cons of Individual Health Plans
High Costs: Without risk-pooling, there is no one to reduce the premium costs. This means individual plans may have a higher premium compared to group plans, especially for older employees or those with health conditions.
Employee-Dependent: As these plans are not managed by the business, the employee has much more responsibility. They must shop for, purchase, and manage their own coverage.
Workplace Confusion: Each employee could have a different provider or coverage level, which may lead to confusion or inconsistency in benefits.
Administrative Complexity: If offering ICHRAs, you'll need to manage reimbursements and ensure compliance with regulations, which requires additional administrative effort.
Lowered Talent Retention or Attraction: Some employees may perceive individual plans as a lesser benefit compared to traditional group coverage, potentially affecting recruitment.
Group Health Insurance vs. Individual Plans: Which Is Better for Small Businesses?
When it comes to health insurance plans, there is no one-size-fits-all answer. You need to consider what plan best aligns with your business’s requirements, budget, workforce, and limitations.
When you take a deep dive into the differences between group health insurance vs. individual plans, the best fit will become clearer. However, if you’re still feeling lost, consider reaching out to a local employee benefits advisor to walk you through your options.
Please let us know if you have any questions. We understand that local companies have unique needs that most national firms don’t consider or struggle to identify. This leaves your people with a less effective, one-size-fits-all benefits plan. However, our ability to cater to the needs of our clients comes from decades of client partnerships. This perspective allows us to fully address unique needs and generate creative benefits plans.
You shouldn’t have to worry about just being a number, offering a generic plan, or getting the unique support you need. Call us today.
This Benefits Insights is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice.