Group vs individual health insurance: what changes when the employer buys it.
Group coverage is bought by the employer for a set of employees. Individual coverage is bought by each person for themselves. The difference shows up in price, tax treatment, who chooses and what happens when someone leaves. CFH is an independent employee benefits consulting firm. See group benefits in Michigan.
Three things separate the two, and price is only one of them.
Who Chooses
With group coverage the employer selects the carrier and plans, and employees choose within that set. With individual coverage each person shops and enrolls alone. That makes the employer responsible for the choices offered, so the selection process should consider the full range of employee needs. Employers who reimburse individual policies should read Reimbursing Individual Health Premiums first.
How It Is Priced
Small group rates are filed with the state and Michigan rates each member by age, area and tobacco use. Individual rates are set separately, so the two markets move differently from year to year. A rate change in one market says little about the other, so compare each on its own terms.
Who Pays
Employers usually pay part of the premium for group coverage. Individual buyers pay it all themselves, apart from any subsidy they qualify for. The size of the employer share has budget and recruiting consequences, so review it each year alongside the plan options instead of carrying it forward by default.
The employer contribution changes the comparison.
A premium comparison on its own misses the part of group coverage that matters most to the people enrolled.
Pre-Tax Premiums
Premiums an employer pays are generally deductible to the business and not taxed to the employee. Employees can pay their share pre-tax through a cafeteria plan. Confirm the treatment of your specific arrangement with a tax adviser, since the details depend on how the plan is set up.
Different Markets, Different Increases
For 2027, Michigan small group rates were filed at an average of about 9.6%. The individual market was filed at about 14.2%. They are not the same number.
Participation Matters
Group coverage depends on enough employees enrolling, and carriers set participation rules. A group with thin enrollment can be priced differently. Employers should ask the carrier what participation level it requires and how waived coverage is counted before setting contributions. Ask for it in writing.
If a group plan no longer fits, employees can still be reimbursed.
An ICHRA lets an employer reimburse employees for coverage they buy on the individual market. It sits between the two and can suit groups that find a traditional plan too costly or too rigid.
ICHRA
A set monthly allowance toward coverage each employee chooses, with the employer controlling the budget. Because the employer sets the allowance and employees choose their own plan, administration differs from a group plan, so model the cost and review eligibility, notice and tax requirements with advisers before adopting it. Confirm the current rules.
QSEHRA
A reimbursement arrangement for small employers, with annual limits set by the IRS. Employers considering it should confirm they qualify and how it interacts with employees’ other coverage, and review the current rules with a tax adviser, since limits and conditions are set by the IRS and can change.
Model It First
Compare the options against your own census before you decide, so the choice rests on your numbers. Include the cost to the employer, the likely cost to each employee and the effect on the lowest-paid workers, so the comparison shows who gains and who pays more under each option.
Who Is in the Pool and Why It Matters
The biggest structural difference is who shares the risk. Group coverage pools the employees of one employer. Individual coverage pools everyone who buys on their own in the state.
Group Coverage
An employer sponsors the plan and eligible employees choose within it. Eligibility follows the plan document, usually by hours worked and a waiting period. Employees typically see one set of plan choices, one enrollment window and one employer contribution schedule, which keeps communication simple.
Individual Coverage
Each person or household shops and enrolls alone, on or off the Marketplace. No employer is involved, and the plan travels with the person. Employees take on the shopping, which suits those who want choice but burdens those who do not know where to start, so decide how much guidance to provide.
Rating Differences
Small group premiums may vary only by age, tobacco use, family size and geography, as published by CMS. Larger groups and self-funded plans can be priced on their own experience. Ask the carrier for the rating basis behind your group’s renewal instead of assuming it.
Eligibility Rules
Group eligibility is set by the employer and carrier. Individual eligibility turns on enrollment periods. HealthCare.gov describes an annual open enrollment window or a qualifying special enrollment period for Marketplace plans. Mark the dates on a calendar so employees do not miss a window after a coverage change.
Start Dates
In Michigan a small-group plan can start in any month with as few as one W-2 employee. An individual plan generally starts after an open or special enrollment period, so timing is less flexible. Employers who want to change timing should plan ahead with the carrier.
Where Employees Land
If a group plan is dropped, employees move into the individual market. Plan ahead so they do not face a gap or a surprise network change. Share information early about enrollment windows and the documents employees may need to apply, and consider a short meeting so they know where to turn for help.
What Each Market Must Cover
Coverage rules differ by market. A plan being sold to a person is not always held to the same list as a plan sold to a 200 person employer.
Individual and Small Group
Fully insured individual and small group plans must cover the ten essential health benefit categories, such as hospital care, prescription drugs and mental health, per HealthCare.gov. Employers comparing options should still review cost sharing and networks, not just whether the required categories are covered.
Large Group and Self-Funded
CMS guidance dated April 2, 2024 states that large group and self-insured plans are not required to offer essential health benefits. If they cover them, annual and lifetime dollar limits are prohibited.
Preventive Services
Most non-grandfathered plans in every market must cover recommended preventive services without cost sharing when delivered in network, per HealthCare.gov.
Dependent Coverage
HealthCare.gov states that children may stay on a parent’s plan until age 26, whether the plan is an employer plan or a Marketplace plan.
Cost-Sharing Cap
The annual limit on cost sharing applies to non-grandfathered large group and self-insured plans as well as individual and small group, per the same April 2024 CMS guidance.
What That Means for You
Do not assume a self-funded plan is thin or a Marketplace plan is rich. Read the Summary of Benefits and Coverage for each. See the SBC explained.
Deductibles, Copays and the Out-of-Pocket Cap
Both markets use the same vocabulary. The federal annual cost-sharing limit is the same ceiling for most non-grandfathered plans.
Deductible
What a member pays for covered care before the plan begins to share cost. Preventive services are covered before the deductible. Employees often confuse the deductible with the out-of-pocket maximum, so explain both in plain language during enrollment and show an example of a typical claim.
Copay and Coinsurance
A copay is a fixed dollar amount per service. Coinsurance is a percentage of the allowed amount after the deductible. Different services can use different structures, so employees comparing plans should look at how office visits, prescriptions and hospital care are charged, not just the deductible.
Out-Of-Pocket Maximum
HealthCare.gov defines it as the most a member pays in a plan year for covered in-network care. Premiums and out-of-network charges do not count.
2026 Federal Limit
As published by CMS on January 29, 2026, the maximum is $10,600 for self-only coverage and $21,200 for other-than-self-only coverage in 2026.
2027 Federal Limit
The same CMS notice sets $12,000 and $24,000 for 2027. A plan may set a lower number, so the limit is a ceiling, not a typical plan.
HSA-Qualified Plans
HDHPs have separate IRS ceilings. The 2026 HDHP out-of-pocket maximum is $8,500 self-only and $17,000 family per Rev. Proc. 2025-19, with 2027 figures of $8,700 and $17,400 as reported for Rev. Proc. 2026-24.
Plan Types Show Up in Both Markets
HMO, PPO, EPO and POS plans exist in both the group and individual markets. Network design usually varies more than the market does.
HMO
HealthCare.gov describes an HMO as generally limiting coverage to providers who work for or contract with the plan, with emergency care as the exception for out-of-network use.
PPO
A PPO pays for out-of-network care at a higher cost to the member and does not require referrals. That flexibility can come with higher premiums or cost sharing than narrower plans, so weigh how many employees actually use out-of-network providers before paying for it.
EPO
An EPO generally covers only in-network care outside emergencies, often with a network similar to a PPO. Employees who travel or live near the edge of a service area should check where in-network care is available, since out-of-network claims outside emergencies may not be covered.
POS
A point-of-service plan costs less in network and typically requires referrals to specialists. The referral requirement adds a step for employees, so explain it clearly in enrollment materials and confirm with the carrier how referrals work and how out-of-network care is treated.
Group Advantage
An employer can pick one network for the whole group and keep it stable. Individual buyers pick again every year and may find their doctor has left the plan. Carrier network changes at renewal can still affect the group, so confirm the network each year.
Test the Directory
Check the providers your employees use in the carrier’s network before you decide. Directory errors happen, so confirm with the provider. Also check pharmacy coverage, urgent care and hospital access, and ask the carrier about any planned network changes, since a directory is only a snapshot.
How Employer and Individual Premiums Are Taxed
Tax treatment is one of the largest practical differences between the markets, and it applies to your employees’ paychecks as well as your books.
Employer Contributions
Under Internal Revenue Code Section 106, an employee’s taxable income generally excludes the value of health coverage provided by the employer, as published in the statute.
Employee Contributions
When employees pay their share through a Section 125 cafeteria plan, the deduction can come out before income tax. See Section 125 cafeteria plans.
Individual Premiums
A person buying individual coverage generally pays with after-tax dollars unless a specific credit or deduction applies. Tax advisors can confirm what applies to a given person. Employees comparing options should look at the full cost after tax, not just the premium shown.
Premium Tax Credit
IRS guidance states that accepting an ICHRA generally bars the employee from the premium tax credit for those months. An employee who declines can claim the credit if the offer is unaffordable.
Business Side
Owners of small businesses can be treated differently from employees for tax purposes. Ask your tax advisor how your entity type is affected. Owners who also participate in the plan may find the rules for their own coverage differ, so confirm with the tax adviser how owners’ premiums are reported before payroll is set up.
Small Business Credit
DIFS notes that small employers may qualify for a small business health care tax credit. Ask your tax advisor whether you do. Eligibility depends on conditions set by the IRS, so have the tax adviser review it each year and do not assume the group qualifies.
ICHRA: When the Employer Funds Individual Coverage
An individual coverage HRA lets an employer reimburse employees for individual market premiums. It sits between the two markets.
What It Is
As described in the IRS FAQ of June 13, 2019, employees and covered family members must have individual market coverage or Medicare for every month they are covered by the HRA.
Who May Offer It
Employers of any size may offer one. Employers with 50 or more full-time equivalent employees must make it affordable to avoid an employer mandate payment. Smaller employers should still review notice and eligibility requirements with advisers before adopting one. Ask what applies to your group.
Classes of Employees
The employer sets allowances by class, such as full-time versus part-time or geography. Allowances can rise with age or family size. Minimum class sizes apply when classes split, per the IRS FAQ.
Tax Treatment
Reimbursements are not counted as taxable wages, per the same IRS FAQ. Employees may pay any remaining premium for off-Marketplace coverage pre-tax through a cafeteria plan.
Where It Fits
An ICHRA works best when your employees have strong individual market options where they live and you want a fixed budget. See our guide to ICHRA vs group health and the ICHRA vs group plan calculator.
Where It Does Not
If your workforce is spread across thin markets or has many high-cost members, a group plan may protect them better. We model both before recommending. A side-by-side comparison on your own census is the best way to see which structure holds up for your employees.
The Employer Mandate and Affordability Test
Federal rules only force coverage decisions on larger employers, but the numbers affect the comparison for everyone.
Applicable Large Employers
The IRS FAQ describes applicable large employers as generally having at least 50 full-time and full-time equivalent employees. They face penalties if coverage is not offered or is unaffordable.
Under 50 Employees
There is no federal employer mandate to offer coverage below that line. The choice is a business decision about hiring, retention and cost. Even without a mandate, offering coverage can affect recruiting and retention, so weigh the cost of a plan against the cost of losing staff.
Affordability for 2026
The affordability percentage is 9.96 percent of household income for plan years beginning in 2026.
Affordability for 2027
The percentage is 10.22 percent for plan years beginning in 2027. Review it each year because the IRS adjusts it.
Penalty Math
Use our employer mandate calculator for an estimate, and see the A penalty and B penalty pages for how each works.
Documentation
Keep records of offers, waivers and measurement periods. See 2027 ACA reporting deadlines.
What Happens When an Employee Leaves
Group coverage ends with employment. What replaces it is a planning point for every employee and for your HR team.
COBRA
The Department of Labor guide, October 2021 edition, defines qualified beneficiaries as the covered employee, spouse, former spouse and dependent children, in general. Employees generally pay the premium plus an administrative charge.
Individual Market
A person who loses employer coverage can look at individual coverage. HealthCare.gov describes special enrollment periods for qualifying life events; dates and rules are on that site.
New Employer Plan
Many people move to a new employer plan. Waiting periods up to 90 days apply per DIFS, so bridge coverage may be needed.
Continuation Administration
COBRA notices and timelines are strict. See COBRA administration and COBRA notices and timelines.
Employee Communication
Tell departing employees in writing what options exist, and point them to a licensed broker or the Marketplace for help choosing. Include the end date of coverage, any deadlines to elect continuation or enroll elsewhere, and who to contact with questions, and keep a record that the notice was sent.
ICHRA Differences
With an ICHRA, the individual plan belongs to the employee, so a separation affects reimbursements but not the policy itself. Employers should still plan how reimbursements end and how final claims are handled, and have counsel review the plan document for those terms.
Which Option Fits Which Employer
There is no single right answer. These are the patterns we see when we review a group. Your own numbers decide.
A Stable Small Team
A group plan usually fits a stable team that values one carrier, one network and a clear employer contribution. That stability makes it easier to plan the budget and negotiate renewals, though the employer should compare options periodically so the plan keeps fitting the team.
A Very Small Group
With one to a handful of employees, check participation and contribution rules first. Michigan allows an employee-paid plan. Because participation and contribution rules can limit options, ask a broker early which carriers will quote the group and what they require, before promising coverage to staff.
A Spread-Out Workforce
Employees in many states or rural areas may do better with an ICHRA, because a single network may not work for everyone. Before deciding, compare which individual plans are available in each employee’s area and whether their doctors participate, and check notice and tax rules with advisers.
A Group Facing a Big Renewal
Do not decide on a single number. Compare the renewal, other group options and an ICHRA budget. Our renewal second opinion can help.
A Growing Employer
If you are nearing 50 full-time equivalents, plan for the employer mandate before you cross it. Track full-time hours and headcount monthly, understand how counts are measured under the federal rules, and review plan design with advisers so crossing the line does not bring surprises.
A Group With Many Dependents
Dependent costs matter. Look at how each option prices family tiers and whether the employer share covers dependents. Ask for rates by tier and compare the employee-only cost with the family cost, since a plan that looks inexpensive for singles can be costly for families.
How to Compare Group and Individual Quotes Fairly
Compare the same things on both sides. A cheap premium with a poor network is not a saving.
Compare Total Cost
Add the premium, the expected out-of-pocket cost and any employer contribution for a typical year and a bad year. A plan with a lower premium can cost more once deductibles and copays are counted, so model the numbers for the employer and for typical employees, not only the premium.
Compare Networks
Check the doctors and hospitals your employees actually use in each network. Ask employees which doctors, hospitals and pharmacies they use, and check each against the network lists of the options, since a mismatch can matter more than any premium difference. Ask for printed network lists.
Compare Drug Coverage
Check the top medications on each formulary. See our pharmacy benefit consulting page.
Compare Tax Effects
Include the payroll tax effect of pre-tax contributions and the effect of the premium tax credit on employees. These effects vary with the employee’s income and household situation, so present them as general information and encourage employees to consult a tax adviser. Avoid giving individual tax advice.
Compare Administration
Group plans need enrollment, payroll deductions and notices. ICHRAs need reimbursement administration. Count the staff time. Consider who handles enrollment, deductions, reimbursement requests and notices, and whether the employer has the people or tools to do it, since hidden work can offset a lower price.
Compare Risk
Fully insured plans have a fixed premium. An ICHRA gives a fixed budget but leaves the employee holding the plan risk. Think about how comfortable the business is with employees facing cost swings, and how an increase at renewal under each arrangement would be handled and communicated.
Group vs individual health insurance: common questions.
Is Group Coverage Cheaper?
Often per person, once the employer contribution and tax treatment are counted, but not always. The honest answer comes from comparing both on your own census.
Do We Have to Offer Group Coverage?
Employers with fewer than 50 full-time equivalent employees are not required to offer it. Larger employers generally must offer coverage or face penalties.
How Small Can a Group Be?
A group can be as small as one W-2 employee, at any time of year, and no minimum employer contribution is required.
Can We Just Pay Employees’ Premiums?
Not simply by paying their individual premiums outside a plan. An ICHRA or QSEHRA is the compliant way to reimburse them.
What Happens When Someone Leaves?
Group coverage ends under the plan’s rules, and the employee may be offered COBRA or an individual plan. The employer’s plan continues for everyone else.
Who Helps Us Compare?
An independent benefits consulting firm can price both on your census. A second opinion on a renewal costs you nothing.
Where the Rules Come From.
The laws and rules named on this page link to the statute or regulation they come from. This is general information, not legal or tax advice, and rules change, so check the current text.
COBRA Continuation Coverage (29 U.S.C. 1161)
Requires many group health plans to offer temporary continuation coverage after a qualifying event.
Affordable Care Act (Public Law 111-148)
The 2010 health reform law, with later amendments, behind employer coverage, reporting and market rules.
Cafeteria Plans (26 U.S.C. 125)
The tax code section that lets employees pay certain benefit premiums before tax.
Health Savings Accounts (26 U.S.C. 223)
Tax rules for health savings accounts paired with qualifying high-deductible health plans.
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The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
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