Helping your team get health coverage can be one of the most meaningful ways to take care of them, and one of the biggest benefits decisions you'll make. It starts with understanding the two main types of health coverage: group plans that you choose and sponsor, and individual plans that people buy on their own.
Here's how the two compare—cost, taxes, enrollment, choice, admin, and recruiting—so you can choose what best fits your team and your budget.
Group vs. individual health insurance, defined
The biggest difference between individual and group health insurance is who holds the plan (a person or an employer).
Individual health insurance is coverage a person buys on their own. They can buy it directly from an insurance company, through a broker, through the Health Insurance Marketplace at HealthCare.gov, or their state's exchange. It isn't tied to a job, so the policy stays with them if they switch employers, start a business, or take time off between roles.
Group health insurance is coverage your business selects and offers to your team. You pick the carrier and plans, decide who's eligible, and set how much of the premium you'll pay. Employees cover the remaining premiums, usually through payroll deductions. Coverage lasts as long as an employee stays eligible. You can also set a waiting period before new hires' coverage starts, as long as it's no longer than 90 days.
6 differences between individual and group health insurance plans
Individual and group plans can cover the same kinds of health care. Neither can turn you down or charge you more because of pre-existing conditions, and individual and small-group plans must both cover essential health benefits like preventive care and prescription drugs. The bigger differences are in how the plans are paid for and managed.
Group health insurance | Individual health insurance | |
Cost | Employer and employees share the premium | Buyer pays the full premium, minus any tax credit |
Tax treatment | Employer contributions are tax-free, and employees can pay their share pre-tax | Usually paid after tax, and income-based premium tax credits may apply |
Enrollment and eligibility | Follows your open enrollment and the eligibility rules you set | Follows the annual marketplace open enrollment, and anyone can buy |
Choice and portability | Employees choose from plans you select, and coverage ends when they leave | Buyers choose any plan in their area, and coverage stays with them |
Admin and compliance | You manage enrollment, deductions, and required notices | The employee manages their own plan |
Recruiting and retention | A visible benefit in every offer letter | Not a benefit unless you help pay for it |
1. Cost
With group coverage, you and your employees share the health care premiums. With individual coverage, the buyer pays them alone.
Group
Small businesses on Gusto typically cover about two-thirds of their employees' premiums, and they've largely kept that share even as costs climb.Your rates reset at each annual renewal, and you decide how much of any increase to absorb. Gusto manages the renewal for you, including finding and presenting plan options, so you can compare before you commit.
Individual
The buyer pays the full premium, though premium tax credits can lower it for people who qualify based on income.
2. Tax treatment
Group coverage has tax breaks built into how premiums are paid. Individual coverage relies mostly on a tax credit tied to income.
Group
Your contributions toward employees' premiums are generally tax-deductible, and they don't count as taxable income for your team. With a Section 125 plan, employees can also pay their share before taxes, which lowers their taxable income and your payroll taxes.
If you offer benefits through Gusto, we manage pre-tax deductions and provide your Section 125 documents.
Businesses with fewer than 25 full-time equivalent employees may also qualify for the small business health care tax credit, worth up to 50% of the premiums you pay. Eligibility rules are narrow, so check with a tax advisor.
Individual
Individual premiums are usually paid with after-tax dollars. Marketplace buyers with household incomes between 100% and 400% of the federal poverty level can get a premium tax credit that lowers their monthly cost. Employees who are offered affordable group coverage generally don't qualify. Self-employed owners who buy their own coverage can typically deduct their premiums.
3. Enrollment and eligibility
Group enrollment runs on your plan's calendar and the eligibility rules you set. Individual enrollment follows the marketplace calendar, and almost anyone can buy a plan.
Group
You decide who's eligible, such as employees who work 30 or more hours a week. New hires can enroll once they're eligible. Everyone else enrolls or makes changes during your annual open enrollment period, or after a qualifying life event like getting married or having a baby.
Carriers may also require a minimum share of your eligible employees to enroll, or a minimum employer contribution, though they must accept you anyway if you apply between November 15 and December 15.
Individual
Anyone can buy an individual plan, with or without a job. For 2027 coverage, open enrollment runs from November 1, 2026, through January 15, 2027, in most states. Outside that window, people need a qualifying life event to get a special enrollment period. Losing job-based coverage counts, so an employee who leaves your company can get individual coverage without waiting until November.
4. Choice and portability
Group coverage gives employees a set of plans that you've picked, and the coverage is tied to their job. Individual coverage gives buyers the whole market, and the plan stays with them.
Group
You choose the carrier and plans, and employees pick from that menu. For many teams, that's a relief: fewer decisions, and every option has already been vetted. The trade-off is that coverage ends when an employee leaves. Federal COBRA (for employers with 20 or more employees) or state continuation laws usually let them keep it for a limited time, typically up to 18 months under COBRA.
Some benefits do go with employees when they leave. A health savings account (HSA) paired with a high-deductible plan belongs to the employee. And HSA-eligible plans are catching on: Gusto data shows adoption among small businesses grew from 33% to nearly 48% in six years.
Individual
Buyers can choose any plan sold in their area, from any carrier and at any coverage level, balancing premiums against deductibles and other out-of-pocket costs. The plan stays theirs through job changes, time between jobs, or starting a business. Comparing the plans is entirely up to them, and the choices available vary by region.
5. Admin and compliance
With group coverage, you take on some admin and legal responsibilities as the plan sponsor. With individual coverage, employees manage their own plans, and your role is minimal unless you help pay for them.
Group
You handle enrollment, dependent changes, and premium payments, with employee contributions deducted from each paycheck. With Gusto, those deductions sync with payroll automatically, and employees can enroll and make changes online.
Sponsoring a plan also comes with a few legal requirements at any size, like a written plan document and certain employee notices. If you have 50 or more full-time employees, including full-time equivalents, the Affordable Care Act (ACA)’s employer mandate adds coverage and IRS reporting rules.
Individual
Employees pay their own premiums, update dependents, and work directly with their carrier. That gives them more control, but it's also one more bill and one more account to manage.
If you want to help employees pay for individual plans, the standard way is a health reimbursement arrangement (HRA), like an ICHRA or QSEHRA. Reimbursing premiums informally outside of an HRA can trigger IRS excise taxes.
6. Employee recruiting and retention
Group coverage gives you an edge over individual coverage in recruiting, because it's a benefit candidates can see in their offer letter. Individual coverage gives employees more independence, but unless you help pay for it, it isn't a benefit you're offering.
Group
Group coverage takes a big decision off your new hire's plate, so they can focus on the job.
It pays off for your business, too. Employees with health insurance are 25% less likely to quit in their first year, according to Gusto data. And in Gusto's 2024 State of Small Business Survey, small businesses that offered health insurance were 13% more likely to report no trouble finding employees than those that offered other benefits but not health insurance.
Individual
Individual coverage suits employees who want a specific doctor or network, or who expect to change jobs and want coverage that goes with them. But then everyone has to research, compare, and enroll on their own, often right as they're starting a new role. If you don't offer a group plan, deciding to help employees pay for individual coverage through an HRA is still a way to offer a real benefit.
Which is right for your business: group or individual?
For most small businesses ready to offer a health benefit, a group plan is the stronger choice. It's a benefit candidates can see in their offer letter, it comes with tax advantages for you and your team, and it can help you retain employees. If your team is very small, spread across many states, or needs a fixed benefits budget, helping employees pay for individual coverage may work better.
Plenty of owners start with group coverage from day one. In Gusto's 2024 State of Small Business Survey, nearly 60% of small businesses that offer health insurance included it in their first benefits package.
With Gusto, you can compare over 9,000 plans across 30+ carriers, enroll your team online, and have premium deductions sync with payroll automatically.
Find a health plan for your team
FAQs
Does my team's health affect group health insurance premiums?
Not for most small-group plans. Under ACA rules, insurers can price fully insured small-group plans using only employees' ages, tobacco use, whether coverage includes family members, and your business's location, not health history or past claims. Level-funded and self-funded plans aren't covered by these rules and may be priced partly on expected claims.
Is group health insurance cheaper than individual health insurance?
For employees, usually yes. Employers pay part of the premium; small businesses using Gusto typically cover about two-thirds of it. Employees can also pay their share before taxes through a Section 125 plan. The total premium isn't always lower, though, and some lower-income individual buyers qualify for premium tax credits.
Can employees turn down group coverage and buy an individual plan instead?
Yes, employees can waive group coverage and buy an individual plan. But if their employer's plan is affordable and meets minimum value standards, they generally won't qualify for a premium tax credit. For 2026, coverage counts as affordable if the employee's share of the lowest-cost self-only plan is no more than 9.96% of household income. Also, most carriers don't count individual insurance as a valid waiver reason, which affects your participation minimum.
Can employers help pay for employees' individual health insurance?
Yes, through a health reimbursement arrangement (HRA). An individual coverage HRA (ICHRA) works for businesses of any size and has no contribution cap. A qualified small employer HRA (QSEHRA) is for businesses with fewer than 50 full-time employees and no group plan, and for 2026 it's capped at $6,450 for self-only coverage and $13,100 for family coverage.
How many employees do you need to get group health insurance?
Usually just one. Most carriers require at least one W-2 employee other than the owner, though rules vary by state and carrier. Many carriers also set minimum participation and contribution requirements. Owner-only businesses generally buy individual coverage instead, and self-employed individuals can typically deduct those premiums.
