How to Start a Small Business Group Health Insurance Plan

January 1, 2010

This article is written to help small businesses wishing to start a group health insurance plan for the first time.  The business may be new or the individuals might have been covered by individual or other types of health insurance.

Understand the Differences

Group health insurance differs significantly from individual health insurance.  The laws and procedures governing this type of insurance are significantly different.  Generally, small business group health insurance must meet both federal and state laws, whereas individual health insurance is only subject to state law.  There are both advantages and disadvantages of group insurance as compared with individual health insurance.

Benefits of Group Health Insurance

Group health insurance is issued to the eligible employees of qualifying businesses without regard to the employee's health history.  If the new member has evidence of coverage under a prior health plan, then pre-existing conditions are covered immediately.  Federal rules about participant rights, known as ERISA rules, apply to group health insurance.

Disadvantages of Group Health Insurance

Group insurance is more expensive than individual health insurance.  This is often because group health insurance contains "mandated benefits" often not included in individual policies.  Another disadvantage is that the price of insurance is increased for all employees in the company if even one employee falls into a "high risk" category.

What You Need

In order to qualify for group health insurance, the business must be an eligible entity and the individuals covered must be full time employees or the dependents of full time employees.  "Full time employee" is usually defined as an employee who works more than 30 hours per week.

1) Business license - To prove eligibility for the business, an insurance company requires a copy of your business license or other similar documentation that shows that the business is legitimate and has been in operation for at least six months.  In some cases, a copy of an advertisement in a telephone directory can be substituted for a business license.

2) UC-2 - To prove eligibility of the employees, the insurer requires a copy of the employer's Form UC-2 state quarterly unemployment compensation tax return.  If the list of employees applying for coverage differs from the list of full-time employees indicated on the UC-2, then attach a written explanation.  For example, "employee terminated" or "Changed to full-time status" would explain the coverage requested.

3)  Broker of Record Letter - The insurance company need written authorization to deal with a broker, agent or adviser acting on behalf of the employer.  These letters are often broadly worded to give the broker authority to shop with multiple insurance companies.

Get Free Help from Sales Reps

Most managed care companies, including HMOs and Blue Cross associations, have employees designated to help enroll small business customers.  These account representatives may be available to visit your business and even personally enroll the employees. 

Commercial insurance companies generally use commission-based agents and brokers to handle enrollment.  The business is required to provide a "Broker of Record" letter to the insurance company to authorize the insurer to work with the agent or broker representing your business.

Get Paid Help from OnlineAdviser

Sometimes agents, sales representatives and brokers are not able to offer the best insurance solutions since emphasis is primarily on solutions that pay commissions.  Most health insurance policies and uninsured health plans do not pay commissions to sales representatives.  OnlineAdviser offers professional support at an hourly fee without any commitment to buying insurance or contracting for ongoing service.  The adviser is licensed by the insurance departments of all 50 states and DC.  The fee is a flat $150 payable in advance.  The paid support ensures specific service as agreed from the adviser, but does not alter the availability or offer of insurance from an insurance company.  Just send an e-mail requesting help with a group insurance plan with your business contact information to OnlineAdviser@medsave.com or submit the form below.  This will generate an invoice and a group census/request form within one business day.  OnlineAdviser usually offers one business day response to requests.  See the OnlineAdviser page for more information.


ONLINE REQUEST:   I request OnlineAdviser help with a new group health insurance plan:

Contact Name    Title

Business name        State      

Mailing Address

Estimated number of participants


Please expect a response within one business day.


What's Next?

After a group health insurance plan is in force, the business is in position to add a consumer driven health plan options to lower costs and improve the quality of health care received.  See the article "How to Start a Successful Consumer Driven Health Plan" for more information.


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