Types of Small Group Health Insurance Plans

Types of Small Group Health Insurance Plans

Offering health insurance is one of the most valuable benefits a small business can provide, helping attract and retain talented employees while supporting their health and wellbeing. Small group health insurance plans come in several types, each with different structures, costs, and levels of flexibility. Understanding the options helps small business owners choose a plan that fits their budget and meets the needs of their workforce. Evaluating plan types based on cost, provider networks, employee preferences, and administrative requirements is essential for making the right choice. 

What Is Small Group Health Insurance?

In the United States, small group health insurance is coverage purchased by a small business for its eligible employees. It is typically defined as businesses with 1-50 employees, though this definition varies by state. The employer sponsors the plan and typically contributes to premium costs, while employees may also contribute through payroll deductions.

Offering group health insurance demonstrates an investment in employee wellbeing, which attracts and retains quality employees. Since premiums are often tax-deductible, it can also provide tax advantages for employers and give employees access to group rates that are typically lower than individual plans. 

Small group plans differ from large group plans in several ways. They are subject to different regulatory requirements and rating rules, must comply with Essential Health Benefits requirements under the Affordable Care Act (ACA), and follow community rating rules that affect how premiums are calculated. Small group plans may have fewer plan design options and different participation requirements compared to the large group market.

Health Maintenance Organization (HMO) Plans

HMO plans require members to choose a primary care physician (PCP) from the network who coordinates care and provides referrals to specialists. Health coverage is generally limited to in-network providers.

Advantages

HMO plans typically have lower premiums compared to other plan types, lower out-of-pocket costs such as copays and deductibles, and predictable costs for employees. Additionally, these plans typically emphasize preventive care, which can improve health outcomes.

Disadvantages

Provider choice is restricted to the network, referrals are required to see specialists, and the plans offer less flexibility for employees who travel or live in different areas. Out-of-network services are not covered except for emergency care.

HMO plans are best for cost-conscious small businesses, employees who prefer lower premiums and predictable costs, workforces concentrated in areas with strong HMO networks, and employees comfortable with the coordinated care model.

Preferred Provider Organization (PPO) Plans

PPO plans allow members to see any provider but pay less for in-network care. There is no primary care physician requirement, no referrals are needed to see specialists, and out-of-network care is covered but at a higher cost to the employee.

Advantages

PPO plans offer greater flexibility in choosing providers, no referral requirements for specialists, out-of-network coverage that provides options when traveling or for specific providers, and broader provider networks in most areas.

Disadvantages

PPO plans usually have higher premiums than HMO plans, higher out-of-pocket costs such as deductibles and coinsurance, unpredictable costs if employees use out-of-network care, and more cost-sharing responsibility for employees.

PPO plans are best for businesses with employees who value provider choice, workforces spread across multiple locations, employees who want direct access to specialists, and businesses willing to pay higher premiums for flexibility.

Point of Service (POS) Plans

POS plans combine features of HMO and PPO plans. Members choose a primary care physician from the network, and the PCP provides referrals for specialist care. Unlike HMO plans, out-of-network care is covered but at a higher cost to the employee.

Advantages

POS plans include coordinated care through a PCP, out-of-network coverage that HMO plans do not offer, lower in-network costs than PPO plans, and flexibility to go out of network when needed.

Disadvantages

A POS plan requires referrals for specialists like HMO plans, has higher premiums than HMO plans, higher out-of-pocket costs for out-of-network care, and has a structure that can be confusing for employees to understand.

POS plans are best for businesses wanting coordinated care with some flexibility, employees who prefer having a PCP but want out-of-network options, workforces that may occasionally need providers outside the network, and employers seeking a balance between HMO savings and PPO flexibility.

High Deductible Health Plans (HDHPs)

HDHPs feature higher deductibles than traditional plans and lower monthly premiums. Employees pay more out-of-pocket before health insurance coverage begins, but HDHPs are eligible to pair with a Health Savings Account (HSA).

HSAs are tax-advantaged savings accounts for medical expenses. Both employer and employee can contribute pre-tax dollars, and funds roll over year to year with no use-it-or-lose-it provision. HSAs offer a triple tax advantage: contributions, growth, and withdrawals for medical expenses are all tax-free. The account belongs to the employee even if they leave the company.

Advantages

HDHPs include the lowest premium costs for employers and employees, HSA tax advantages and long-term savings opportunities, encouragement for employees to be cost-conscious healthcare consumers, and the ability to invest and grow HSA funds over time.

Disadvantages

HDHPs include high out-of-pocket costs before coverage kicks in, potential discouragement of employees from seeking necessary care, limited suitability for employees with chronic conditions or high medical needs, and the requirement for employee education on how HDHPs and HSAs work.

HDHPs are best for younger, healthier workforces with lower healthcare utilization, employees who want to save for future medical expenses, businesses looking to reduce premium costs, and employees comfortable with higher cost-sharing in exchange for lower premiums.

Health Reimbursement Arrangements (HRAs) 

The Qualified Small Employer HRA (QSEHRA) allows small employers with fewer than 50 employees to reimburse employees for individual health insurance and medical expenses. The employer sets a monthly allowance, and employees purchase their own coverage. Reimbursements are tax-free for employees, there are no minimum contribution requirements, and QSEHRAs serve as an alternative to traditional group health insurance.

The Individual Coverage HRA (ICHRA) is available to employers of any size. Employers reimburse employees for individual health insurance premiums with no caps on contributions. ICHRAs can be offered alongside a traditional group plan to different employee classes, but employees must have individual coverage to participate.

Advantages

HRAs offer flexibility for employees to choose their own coverage, predictable costs for employers through fixed monthly allowances, no participation requirements, affordability compared to traditional group coverage for some businesses, and the ability for employees to select plans that best fit their needs.

Disadvantages

Employees under an HRA are responsible for finding and purchasing their own coverage. These plans can create confusion for employees unfamiliar with the individual market, increased administrative requirements for the reimbursement model, and potentially higher costs for employees on the individual market in some areas.

HRAs are best for very small businesses that cannot afford traditional group plans, employers wanting to offer benefits without managing a group plan, businesses with employees who have diverse healthcare needs, and companies in areas where the individual market offers competitive plan options.

Factors to Consider When Choosing a Plan Type

Company Budget

Cost considerations include employer contribution amount and affordability, employee premium share and out-of-pocket costs, total cost of coverage including claims and administration, and tax implications for employer and employees.

Employee Needs & Preferences

Consider the demographics and health status of your workforce, geographic distribution and network availability, preference for provider choice versus lower costs, and whether employees have chronic conditions or high healthcare utilization

Network and Access Considerations

Business owners should consider the availability of quality providers in plan networks, access to specialists and hospitals employees prefer, comprehensive coverage for employees who travel or live in multiple areas, and telehealth and virtual care options.

Flexibility Options

Features like the ability to customize plan features, options for different employee classes, and compatibility with HSAs or HRAs can be appealing to employees. Businesses should also make sure that their plan has room to adjust as the company grows or needs change.

Working with a Broker or Advisor

Using an insurance broker provides expertise in the small group market and available options, the ability to compare plans from multiple carriers, guidance on compliance and regulatory requirements, assistance with enrollment and employee communication, and ongoing support for administration and renewals.

When selecting a plan, ask your broker about:



• What plan types are available in your area
• How employees' premiums compare across plan types
• What network options and provider availability look like
• What administrative support the carrier provides
• How the plan will work for your specific workforce

Find the Right Group Plan with a Qualified Broker

Small group health insurance plans come in several types, including HMO, PPO, POS, HDHP, and HRA-based options, each with different cost structures, provider access, and flexibility. The right plan depends on the business's budget, employee needs, and preferences for provider choice and cost-sharing.  Evaluate your workforce's needs and budget, compare available plan types, and consult with a licensed insurance professional to select the small group health insurance plan that works best for your business and employees.

Working with an experienced broker can help small businesses navigate coverage options and find the best fit. At BIS Benefits, our professionals shop coverage from a variety of health insurance companies to help business owners find the right small group plan. If you're located in Georgia and have at least 15 employees, Request a Quote from BIS today.