What Is Group Health Insurance and How Does It Work?

A group health insurance is a type of health coverage typically offered by an employer or organization to a “group” of people—the employees or members of the organization. Group health insurance is typically cheaper for members of the insured group as compared to separate individual plans since the insurer’s risk is spread across a large number of participating members of an organization. It is an important part of an employee benefits program and employers should know how group health insurance works in Canada. 

Whether you’re an employer who is looking to offer group health insurance to your employees in Canada or someone who is simply curious about how an employee benefits plan works in Canada, this blog is for you! 

What is group health insurance? 

Group health insurance, also known as a group plan or employer-sponsored coverage, is a type of health insurance that an employer purchases and offers to its employees and their dependents. This group of people is accordingly covered under a single policy, offering benefits such as:

• Dental and vision care
• Hospitalization
• Prescription drugs
• Chronic disease coverage
• Other healthcare services

Employers or organizations usually negotiate the terms of the insurance policy and may subsidize part or all of the premium costs for their employees or members. Group health insurance is typically offered to all full-time or part-time workers as part of an employee benefits program.

How does group health insurance work in Canada? 

Group health insurance, also called group benefits or employee health benefits, provides employees with access to comprehensive healthcare coverage and is offered by an employer or an organization. The employer is the primary policyholder of a group health plan which covers all or some of the employees in an organization. 

Most insurers require 80% to 100% participation in a group health plan depending on the number of employees.

Group health insurance policies in Canada typically work in the following way:

1. Employer sponsorship: Employers choose a plan they want to offer to their employees. The employer negotiates the terms of the insurance policy with an insurance provider and may subsidize part of the premium costs for their employees. Within the plan, the employer can choose to add various types of benefits such as  health, dental, vision and prescription drug coverage, plus optional access to life insurance, disability and family assistance plans.
2. Employee enrolment: Employees can choose to enroll in or decline a group health insurance plan during the specified annual enrollment period. They have the option to choose from a few plan options and coverage levels. To mitigate risk across a larger group and prevent adverse selection, most insurers require a minimum 70% participation. 
3. Premium payments: The premiums are typically split between the employer and employees. Employers pay directly to the insurance company and deduct the employee’s contribution through payroll. 
4. Access to dependents: Employees can add family members and current and future dependents to the group health insurance plan at an additional cost
5. Employee usage: Employees can thereafter claim on the benefits as needed. Pharmacies, dentists, as well as health and vision practitioners directly bill the insurance company for covered expenses
6. Annual renewal: Employers work with the insurance company for annual renewal and repricing of the insurance contracts
7. Administration: The administration of group health insurance plans can vary. Some employers choose to manage the plans themselves, while others may contract with insurance companies or third-party administrators to handle claims processing, customer service, and other administrative tasks.

Group health insurance is cheaper than individual policies. This is simply because of the higher number of participants in the group health insurance plan, making it one of the most affordable health care policies available in Canada. One of the key implications of group health insurance is that healthier individuals effectively subsidize the costs of those who require more medical care.

Check out a variety of group health insurance types available for Canadians

Employee enrollment process for group health insurance

To ensure a smooth administration of group health coverage, employers should follow the steps mentioned below:

• Inform the employees about the available health plans, coverage options, and enrollment period
• Employees should select their plan and if they want to add dependents, if applicable
• Employees will have to fill out a form with the designated coverage options as well as their personal information
• Employees will submit the forms to the employer or HR department within the pre-discussed timeframe
• Once the enrollment procedure and verification are complete, employees will receive confirmation and health insurance cards

Employee eligibility criteria for group health insurance in Canada

• Employment status: Employees must be actively employed, either full-time or part-time, by the organization offering the group plan. Depending on the plan’s requirements, temporary, contractual, or seasonal workers may also be eligible
• Minimum hours worked: Employees typically need to work a minimum number of hours per week, often 20-30 hours, to qualify for the group plan. Some plans may have different minimum-hour requirements
• Waiting period: New employees may need to complete a waiting period, often 3 months, before becoming eligible for coverage. The waiting period allows the employer to confirm the employee’s employment status
• Residency requirements: Employees must be Canadian citizens or permanent residents to be eligible for the group plan. Some plans may also accept employees with valid work permits
• Age limits: Group plans typically cover employees up to the age of 65 or 70. Dependent coverage may be available for spouses and children up to a certain age, often 19-25 years old
• Pre-existing conditions: Group plans cannot exclude or limit coverage for pre-existing medical conditions. Employees are covered for pre-existing conditions from the start of the plan
• Minimum group size: Employers must have a minimum number of eligible employees, often 3-10, to qualify for a group health insurance plan

How is group health insurance different from individual plans?

While group health insurance is purchased by an employer and covers the employees of an organization, an individual health insurance plan, as the name suggests, is purchased independently by an individual for their own needs. Individual health insurance plans, also known as personal health insurance or private medical insurance, vary based on the individual’s age, medical history, and lifestyle (whether they’re smokers etc.). 

Benefits of group plans for employers

Offering group health benefits is an effective way to promote employee well-being and morale. It also:

✅ Helps organizations attract and retain talent 

✅ Can be written off as a business expense, hence saving tax for the organization

✅ Encourages employees to seek preventative care, promoting a more healthier and productive workforce

✅ Depending on the location of the organization, offering health insurance coverage to employees may be required by law. Providing group health insurance ensures compliance with applicable regulations

Group health benefits for employees

With a group health insurance plan in Canada, employees also get:

✅Access to a wider range of medical services like dental care, vision care, prescription medication, emergency travel, life insurance, etc.that are not covered under provincial plans

✅ Lower premiums as compared to other individual plans

✅ The option to add family members and current and future dependents to their policy

✅Coverage for pre-existing medical conditions

✅Incentives for preventive care and wellness programs, motivating employees to adopt healthier lifestyles 

What do employee benefits cover?

Group health policies and employee benefits, although distinct, are often used interchangeably. A group health insurance plan is part of an employee benefits package, offered by employers to their employees. While group health insurance is a significant component of employee benefits, it is not the only one. Other common employee benefits may include life insurance, disability insurance, paid time off (such as vacation days and sick leave), wellness programs, and more.

Depending on the plan an employer chooses, group employee benefits typically include a variety of health and other non-medical benefits.

How can I enroll in group health benefits?

Once hired, you need to enroll in the group health insurance plan within a deadline. If this deadline is missed, you might have to wait until the annual enrollment window is open. Typically, a new employee who joins after the enrollment period is over has to wait for a period of 30-90 days before they can get group health benefits. This period is designed to ensure a degree of commitment from the employee to the employer before benefit enrollment.

Some group health insurance plans offer supplemental benefits like dental and vision care. During the enrollment process, you can choose any additional benefits you might want and add your family members and/or dependents.

Who pays for group health insurance?

Different organizations have different rules when it comes to paying group health insurance premiums. Generally, there are three ways in which the premiums for group health insurance are paid. These are: 

1. Employer-sponsored plans: The employer pays the entire cost of the group health benefits plan and the employee is not expected to contribute.
2. Cost sharing with employees: An employer and their employees split the premium costs at a predefined rate. Commonly used splits are50 percent each or 70 percent by the employer and 30 percent by the employee. These arrangements can differ depending on the specific plan and the agreements between the employer and their employees.
3. Employee add-on costs: If employees want to add dependents or get an advanced plan with additional benefits, they have the option to pay the extra premium

How much do group health plans cost?

The cost of a group health plan varies depending on the type of package an employer purchases with options such as basic, advanced, premium offering different levels of coverage. Each package offers different coverage and depending on who is covered, the premiums can vary. For small businesses, a benefits plan can cost about 5-15 percent of the total payroll on an annual basis. 

In the following table, we’ve included representative average premium costs for a group health insurance plan based on who is covered, the plan type, and coverage options: