How Does Group Insurance Work: Your One Stop Guide

How does group insurance work

When it comes to insurance, one of the biggest challenges that small businesses face is finding the best way to take care of their employees and understanding the question, ‘how does group insurance work’. There could be dozens of alternatives from which to choose; and even though large organizations with a dedicated HR team could put a finger on the best option with relative ease, for a small business with limited resources, this could prove to be extremely difficult.

However, with some effort, and perhaps some professional assistance, it can be done! If you are a small business owner, knowing your options is key to making the right decision. One of the options that many small businesses prefer is administering a group insurance policy for their employees. You may wonder, “What is group insurance? How does group insurance work? What benefits could it bring to my employees, and to me as the employer?” This one-stop guide to group insurance will answer those questions.

What is Group Insurance?

Group insurance is insurance that covers all eligible members of a pre-defined group, such as all employees in a business organization. Group insurance is primarily paid for by the employer. However, oftentimes employees will also make contributions toward the policy. For example, each employee in a company may have a small percentage of his salary set aside to help pay the company’s monthly premiums.

Instead of individuals having to bear the brunt of finding appropriate coverage, and perhaps paying higher premiums for insurance not covered in the public sector, a group insurance policy allows risk to be pooled among all of the employees in the company, while at the same time providing equivalent coverage at lower premiums.

So now that we have a clearer understanding of what group insurance is, exactly how does group insurance work?

How Does Group Insurance Work?

Group insurance requires a great deal of planning on the employer’s end. It is critical that you have a clear picture of several factors, including:

  • The percentage of payroll that you are realistically able to set aside to pay for your company’s monthly group insurance premium. While some larger corporations may be able to set 20-25% of payroll aside for their employee benefits plan, if not more, as a small business owner you may need to operate within much lower thresholds in order to successfully implement a sustainable plan.
  • What is most important to your employees. While you may not be able to offer a comprehensive insurance package that covers all types of employee benefits, if you understand what your employees need, and what they are interested in, then you will be better able to craft a group insurance plan that makes them happy. At the same time, a targeted plan will no doubt prove more cost-effective for your company.
  • The conditions that must legally be satisfied in order for a group insurance policy to exist. For example, eligible employees under the policy would have to be actively at work, and work a minimum number of hours every week, (usually at least 20 hours).

It is also important to understand that a group insurance policy is a legal contract between the employer, (or the plan sponsor) and the insurance company or provider. Therefore, certain critical components of the policy need to be clearly defined in the contract, such as:

  • When coverage begins and ends (perhaps, but not necessarily, on an annual basis)
  • Who is eligible for coverage
  • When the eligibility period begins
  • How the insurance company will calculate premiums
  • How the policy will be administered

Because of the increasing flexibility of group insurance plans, it is important to carefully consider which policy options make the most sense for your company’s particular situation. For example, will your company provide a co-pay of 70%, 80%, or 100% on qualifying medical bills? What portion of the monthly premium will qualifying employees be required to pay? Will there be deductibles? Will there be caps on how much the insurance company is required to pay, or on how long unused sick days can “roll over?” With forethought and planning, such questions can be satisfactorily answered.

As you can see, the amount of planning for a group insurance policy can be immense; yet, there are a number of benefits that can be reaped from the successful implementation of just such an employee benefits plan. What are some of them?

The Benefits of a Group Insurance Policy

There are several benefits that come from having a group insurance policy, both to the employees and the employer. For the employees:

  • Generally, they don’t have to pay as much for their insurance premiums as they would for individual plans.
  • Since eligible employees have their contributions directly taken from their paycheck, it is one less bill for them to worry about, (and potentially to forget!)
  • Due to the collective nature of group insurance, employees don’t have to be “pre-screened” or provide evidence of good health in order to qualify for coverage.
  • A group insurance policy tailored to your employees’ specific needs provides evidence that you care about their health and well-being. This will positively impact both their productivity and the workplace environment.

Employers also benefit from implementing a group insurance policy. For instance:

  • A good group insurance plan will help to attract and retain top-tier talent.
  • Any premiums paid to the insurance company are considered a tax-deductible business expense.
  • Companies will generally enjoy healthier workplaces. With good coverage, sick employees won’t feel obligated to drag themselves to the office, and risk infecting their co-workers.

With all the group insurance options available to small businesses, and other organizations, perhaps you may feel confused about where to start. If so, then BP Group Solutions can provide you with the expert guidance you need to make a well-informed choice. We are committed to providing small businesses in the Lakeland area group benefits that are customized for their specific needs. We can help you set up a group insurance policy that will allow you to retain and grow your most important asset: your people. Contact one of our experts at BPGS today for more information.