Smaller businesses can benefit from group health insurance. The 2018 eHealth Small Business Health Insurance Report found smaller groups, as few as 3-4 people, sign up for group health insurance. In fact, the average group size for small businesses was just 3.9 employees. There are several reasons why small businesses may find this approach to be the most cost effective for them.

One reason could be the rapidly increasing cost of individual plans. Small businesses may realize that group health insurance plans offer savings by covering the entire staff under one policy. Even if there are only a few workers, group coverage may be more cost effective than offering individual plans to each employee.

Is group health insurance cheaper than individual health insurance?

Small group health insurance plans can have a lower per-person cost than individual plans. According to the eHealth report, small group health insurance rates had, on average, the following prices:

• Premium for small business coverage: $409
• Deductible for small business coverage: $3,140

In comparison, the average costs for an individual plan were:

• Premium for individual coverage: $440
• Deductible for individual coverage: $4,578

The average deductible for small business health insurance was 31% lower than the average deductible on an individual plan.

Keep in mind that each plan has its own terms and limitations, so be sure to check the official plan documents to understand how that specific plan works. This article is only for general education, and business owners should compare small business health insurance versus individual rates on a case-by-case basis.

Is small business health insurance cheaper than individual coverage? 

According to the survey data, group coverage is generally a more cost-effective choice for small businesses than individual coverage. There are a few reasons why small group health insurance usually ends up costing less per person than individual plans.

• Employer Contributions: employers often cover at least half the premium, so the premium cost for individual employees is usually lower.
• Tax Benefits for Employees: employees usually pay their portion of the premium with pre-tax money, which can add up to significant savings.
• Tax Benefits for Employers: employers may deduct the amount they pay for employees’ premiums from their business taxes and even receive special tax credits in some cases.
• Risk Pool Advantages: the high cost of one insured person who is higher risk has a smaller effect in a larger pool, lowering costs overall.

There are, of course, different reasons why plans cost less or more, and cost will vary from plan to plan. Make sure to check the plan details before choosing to enroll in group health insurance, and make sure you understand all the costs and covered services. 

The stability of small group health insurance

Stability is another potential benefit of small group health insurance instead of individual plans. Even when the market is unstable, small group health insurance rates tend to remain somewhat consistent over longer periods. From 2015 to 2018, average per-person premium coverage on group plans only increased by 5 percent.

One thing that has remained consistent in the individual market: rising prices. Average premiums on individual plans increased 54% – from $286 in 2015 to $440 in 2018. Every year, prices rise on individual plans, making this option more costly all the time.

Finding the right plan for your business

The price advantage may be a primary factor in the trend towards small businesses enrolling in group plans. If you’re still wondering if group health insurance is cheaper than individual, it might be worth taking the time to compare group plans to see if this option would be more cost effective for you and your employees. eHealth’s plan finder tool makes it simple to compare small business health insurance versus individual plans. You can find small group health insurance rates for your zip code from the convenience of your home.

As another option, ICHRA (Individual Coverage Health Reimbursement Arrangement) plans could be another affordable choice for small businesses. These plans let employers provide health coverage benefits and may be more competitively priced than group coverage. With an ICHRA plan, employers set aside a certain amount for each employee to use towards purchasing health coverage. Employees than buy their own health coverage and are reimbursed by their employer with pre-tax funds. 

A licensed insurance broker can list the pros and cons of each model and help you develop a small group health insurance plan that is right for your small group. Visit eHealth to find the plan that works best for your business. Our trusted agents have years of experience and industry knowledge and can help walk you through your different options.

Always consult your tax and legal advisors to understand your specific tax and compliance situation. This article is for general information and not intended to provide any tax or legal advice.