What Is a Group Benefits Plan and How Does It Work?

Every small business has a different path to offering benefits. Whether you’ve got a financial cushion or you’ve taken out loans to start your company, you still want to make every dollar count when it comes to business expenses. In a study by The Commonwealth Fund on small business owners’ top problems, 37% of business owners listed healthcare costs as their number one priority.

Healthcare for small businesses is always a balancing act between keeping costs down and getting the most value out of your coverage. That’s one of the many reasons why accessing benefits for your small business can feel so anxiety-inducing.

But there’s a way to strike that balance of quality and competitive rates — through a group benefits plan.

What Are Group Benefits?

Group benefits are benefits in a plan offered and maintained by an employer, or by a professional employer organization (PEO) that provides health coverage either through insurance, reimbursement, or another option.

Generally, it’s more advantageous for plan members (e.g., your employees) to get their health insurance through their employer, since, often, premiums are lower because of employer contributions, and health coverage is much richer.

Group benefit advantages run both ways: the employer can make a compelling case for employees joining or staying at their company, while the employee has their needs addressed in a potentially more affordable and comprehensive way.

One of the complications of offering benefits is that people’s healthcare needs are becoming increasingly complex. We’re a long way from simply offering medical, dental, and vision, and calling it a day. Employees expect their companies to not just provide coverage for health needs, but also mental health support, retirement savings plans, commuter benefits, and more

How Do Group Benefits Work?

Group benefits plans, as the name implies, can only be purchased by groups like your company, and require at least 70% plan participation to be valid. This is partly why the cost for participants in group benefits plans is usually lower, because more participants typically means less risk for the insurance carriers.

PEOs act as a super group in this regard, because they bundle together many companies, even further spreading out potential risk across thousands of employees. PEOs allow small businesses to get access to high-quality benefits usually only affordable to massive, corporate-sized companies.

How Do Group Plans Help Small Businesses?

According to an employee survey conducted by Justworks, 88% of employees said the quality and options of their health benefits were important.

One reason could be that access to health benefits is still limited for employees of small companies; the Bureau of Labor Statistics reported that of companies with less than 100 employees, only 58% offered access to health benefits.

So when it comes to offering your team benefits, you’re making a huge impact in a few key areas of your business:

Competition

With benefits top-of-mind for potential hires, you need to include employee benefits if you want to attract and retain the best talent. Whether you offer individual benefits a la carte (like FSAs) or with a cherry on top (benefits and perks) is up to you — but more employee options bode well for winning the talent war.

Employee Happiness

Studies have shown time and time again that employee happiness is tied to higher productivity and the overall success of a business. And employees who aren’t stressed out about whether they can afford a routine doctor's visit are more likely to be in good health and in good spirits.

Retention and Less Turnover

Employees who have benefits might be more likely to be satisfied with their job and less likely to leave for greener pastures — this could save on steep turnover costs. In a study on employee retention, the Work Institute estimates the average cost of losing a worker to be $15,000. Multiply that by a number of unhappy employees and the potential turnover costs are staggering.

Types of Benefits You Can Offer

Health Insurance

Healthcare coverage is itself a necessity for employees, and you should think of it as such when it comes to the benefits you offer. Health insurance plans may range from low to high deductible and out-of-pocket costs plans depending on what you’re offering your employees.

Retirement Plan

When it comes to retirement plan benefits, there are a number of options available, spanning 401(k) plans and different savings accounts:- 401(k) plan - A widely used employer-sponsored plan, employees allocate a portion of their paycheck pre-tax to their retirement savings.- Simplified Employee Pension Plan (SEP IRA) - A popular option for small business owners to save for retirement and get a tax-deferred benefit- Savings Incentive Match Plan for Employees (SIMPLE IRA) - A plan that's suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.

Disability Insurance

If your business is located in New York, New Jersey, Hawaii, California, or Rhode Island, you’re required to offer disability insurance. If your company is in a different state and you can’t afford it, consider voluntary benefits — a small amount of money will be pulled out of an employee’s paycheck to cover the insurance.

Related Article: What’s the Difference Between an Employee Benefit and Perk?

What Benefits Options Are Available to You?

There are plenty of ways to go about getting small group benefits. What matters is that you find the right fit for you and your company. Here is an overview to help:

PEOs

PEOs are the secret sauce for small group benefits. We’ve written a more extensive blog post about PEOs here, but, as we mentioned before, the nuts and bolts go like this: PEOs aggregate small groups together, so your company can get all the access to richer benefits plans that corporations and large businesses take advantage of every day.

While the primary advantage of a PEO is the elevated access to rich, big-company benefits at competitive rates, PEOs like Justworks can also help streamline the day-to-day of running a business, like simplifying payroll processes, providing a suite of online HR tools, and giving employers 24/7 support for all their biggest HR questions.

The Affordable Care Act’s SHOP Marketplace

The SHOP Marketplace (Small Business Health Options Program) is part of the Affordable Care Act’s initiative to bring healthcare to small businesses. In order to be eligible, you must have 50 or fewer employees. However, there are variations on these laws state by state, such as how many employees need to enroll for eligibility. If you use SHOP, you’ll get small business tax credits and brokers to help you select small group plans.

Individual Health Insurance

If your company doesn't offer access to health coverage, employees will have to have to go through a broker or the public marketplace. Employees then select from a plan and carrier that’s available. If your employees have health insurance tax credits, they may also be eligible for discounts on premiums.

A broker will act as a consultant for the small group. That means they will set up the defined contribution allowances and sell individual policies to your employees. Most people who choose this option aren’t eligible for group health insurance. If you feel like you’re priced out of group health insurance, consider going with a PEO.