Group health insurance: how it works and what it costs

How group health insurance works

• The employer is the policyholder. It picks the plan or plans, sets who is eligible and decides how much of the premium it pays.
• Employees enroll when they become eligible and then each year at the plan's open enrollment. Many employers also cover spouses and dependents, though they don't have to.
• Premiums are usually split. The employer pays a share and the employee's share comes out of each paycheck.
• Taxes favor it. IRS Publication 15-B says employer contributions to an accident or health plan for an employee can generally be left out of the employee's wages.

HealthCare.gov describes a small employer as generally one with 1 to 50 employees. Larger groups buy in the large group market or pay claims themselves (self-funding), usually with help from an insurer or administrator.

Participation and contribution rules

Small group insurers often require a minimum share of eligible employees to enroll (participation) and a minimum employer share of the premium (contribution). The exact numbers are set by the insurer within what state law allows, so they vary. Ask the insurer or a broker for the rules in your state before you plan your offer.

If your group can't meet those rules, federal rules still let you buy small group coverage. Under 45 CFR 147.104, an insurer may limit you to an annual enrollment window from November 15 through December 15.

• To claim the Small Business Health Care Tax Credit, you must pay at least 50% of employee-only premiums. That is a separate rule from any insurer's contribution minimum.
• Insurers differ on how they count employees who decline because they have other coverage, such as a spouse's plan. Ask before you quote.

What group coverage costs

Smaller firms are less likely to offer coverage at all. KFF found 59% of firms with 10 to 199 workers offered health benefits in 2025, compared with 97% of firms with 200 or more.

The Small Business Health Care Tax Credit

• Who qualifies: fewer than 25 full-time equivalent employees, average annual wages below the yearly limit, and you pay at least 50% of employee-only premiums. For 2026, the credit starts shrinking above average wages of $34,100 and is gone at $68,200, under IRS Rev. Proc. 2025-32.
• How much: up to 50% of the premiums you pay (35% for tax-exempt employers). The credit is largest for employers with 10 or fewer FTEs and lower average wages.
• How long: two consecutive tax years.
• Where: you generally must buy a plan through the SHOP Marketplace to claim it, through an insurer or a SHOP-registered agent or broker.

Check the current wage limit and your eligibility with a tax advisor before you count on the credit.

Alternatives to a group plan

Some employers fund individual coverage instead. An individual coverage HRA (HealthCare.gov now calls it a CHOICE Arrangement) reimburses premiums and medical costs tax-free for employees who buy their own plan. Employers under 50 can use a QSEHRA. See small business health insurance for a side-by-side look.

Employers with 25 or more employees can also add Gabriel for Teams, a care membership, alongside a health plan. It is not group health insurance and not an HRA or ICHRA, it doesn't replace a health plan, and it never satisfies the ACA employer mandate.