What a Group Health Plan Is and How It Works in Tennessee

A group health plan is coverage that an employer maintains for its employees, with the employer — not the employee — as the party that holds the policy. Everything else about how it works follows from that one structural fact, and in Tennessee it follows through a set of rules the state deliberately chose to leave at the federal setting. This is what that looks like from the inside for a Tennessee business that has never bought coverage before.

The plan belongs to the employer, and the employer holds it

Federal rules draw the dividing line by asking whether coverage is offered in connection with a group health plan. The group market is defined as “the market for health insurance coverage offered in connection with a group health plan.” The individual market is defined as the market for coverage offered to individuals “other than in connection with a group health plan.” And the small group market is the market “under which individuals obtain health insurance coverage (directly or through any arrangement) on behalf of themselves (and their dependents) through a group health plan maintained by a small employer.” Those are all from 45 CFR 144.103.

The practical consequence shows up immediately in how the coverage is priced and located. In the small group market the rating area is determined, in the regulation’s words, “using the group policyholder’s principal business address” — the employer’s address, one of them, for the whole group. Employees who live across a state line or work from three different counties do not each drag their own geography into the arrangement.

Tennessee’s small-employer line is the federal one, by Tennessee’s own choice

Federal regulation sets the small-employer definition and then hands states an option to move it. Here is 45 CFR 144.103 in full on that point:

Small employer means, in connection with a group health plan with respect to a calendar year and a plan year, an employer who employed an average of at least 1 but not more than 50 employees on business days during the preceding calendar year and who employs at least 1 employee on the first day of the plan year. A State may elect to define small employer by substituting “100 employees” for “50 employees.” In the case of an employer that was not in existence throughout the preceding calendar year, the determination of whether the employer is a small employer is based on the average number of employees that it is reasonably expected the employer will employ on business days in the current calendar year.

That middle sentence is an option, and Tennessee looked at it and passed. The Department of Commerce and Insurance published Bulletin No. 15-01 on October 22, 2015, taking the position that adhering to the federal definition was in the best interest of Tennessee consumers and the insurance industry, and stating that the Department “will not apply the State option.”

CMS records the same outcome from the other direction. Its state-by-state table carries a column enumerating the states that have notified it they are expanding the small-employer definition, and that column names California, Colorado, New York and Vermont. Tennessee is not among them. So the federal definition quoted above is the one that decides whether a Tennessee business buys in the small group market or the large group market, and the last sentence of it is the one that matters to a business that has not been around a full calendar year yet.

What “federally facilitated” means once you sit down to buy

Tennessee is a federally facilitated marketplace state. That label gets used as though it explains itself, so here is what it actually means when you go looking.

An Exchange is a governmental agency or non-profit entity that makes qualified health plans available to qualified individuals or qualified employers, and it can be established and operated either by a state or by the federal government. Where the federal government does it, the regulation calls the result a federally-facilitated Exchange: “an Exchange established and operated within a State by the Secretary under section 1321(c)(1) of the Affordable Care Act.”

Concretely, in Tennessee: there is no state-branded marketplace website to find, no state marketplace name to learn, and no state marketplace call center. Tennessee’s own enacted law treats the federal one as the only one there is — 2026 Public Chapter 932 defines “marketplace exchange” to mean “the federal health insurance marketplace or federal health benefit exchange.” And the Department of Commerce and Insurance heads its own consumer-facing marketplace section “Affordable Health Care Act - Federal Market Place” and refers consumers to HealthCare.gov. When a Tennessee employer is told to go to the marketplace, the federal one is the marketplace.

SHOP is run by an Exchange, which makes it a state-level question

The Small Business Health Options Program sits inside that same structure. SHOP is defined as “a Small Business Health Options Program operated by an Exchange through which a qualified employer can provide its employees and their dependents with access to one or more QHPs,” and a federally-facilitated SHOP is one “established and operated within a State by the Secretary.”

Because SHOP is operated by an Exchange, and an Exchange may be state-run or federally run, SHOP is not one national program with one national shape. Whether a SHOP is available where you are, who runs it, and how it behaves are state-level facts. We are not going to assert a Tennessee answer to those questions on this page, because the federal sources we read for it carried no state-level content and a per-state SHOP claim needs its own verification pass.

What the federal SHOP material does establish generally is worth knowing before someone tells you otherwise: timing is not confined the way individual coverage timing is, and an employer can work through a SHOP-registered agent or broker rather than going it alone.

Guaranteed issue, and the half of the sentence that gets dropped

This is the single most load-bearing rule for a first-time small-employer buyer, and it is also the most commonly half-quoted.

45 CFR 147.104 requires that an issuer offering coverage in the individual, small group or large group market in a state “must offer to any individual or employer in the State all products that are approved for sale in the applicable market, and must accept any individual or employer that applies for any of those products.” Your employees’ health histories do not gate whether your group can buy. A serious diagnosis in the group does not get you declined.

But the rule opens with “Subject to paragraphs (b) through (d) of this section,” and that is not decoration. Paragraph (b) contemplates a group health plan in the small group market “that cannot comply with employer contribution or group participation rules for the offering of health insurance coverage, as allowed under applicable State law,” and permits an issuer to restrict availability to a defined annual enrollment window in that case. Minimum participation and minimum employer contribution are real conditions, they sit outside the guarantee, and the level of each is set by state law where a state sets one and otherwise by what issuers in that state customarily use. We name both because both exist. We do not put a number on either.

One useful point on how participation gets counted: it is measured against the employees offered coverage, and employees already covered elsewhere — through another group plan, through government coverage, or on their own — count toward it rather than against it.

What a small group plan has to cover

Coverage sold in this market is not a blank sheet. 45 CFR 147.150 requires that an issuer offering coverage in the individual or small group market “must ensure that such coverage includes the essential health benefits package,” effective for plan or policy years beginning on or after January 1, 2014. The benefit categories that package is built from are named in 45 CFR 156.110(a): ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; pediatric services, including oral and vision care.

The same section also requires an issuer to “ensure an appropriate balance among the EHB categories to ensure that benefits are not unduly weighted toward any category,” which is what stops a plan from technically touching every category while gutting most of them.

Fully-insured, level-funded, self-funded

Underneath the plan design sits a funding shape, and a first-time buyer is often shown two of these without being told they are different animals.

In a fully-insured arrangement the issuer carries the claims risk, and the coverage sits inside the small group market’s federal requirements — essential health benefits, guaranteed renewability, the single risk pool. In a self-funded arrangement the employer carries the claims risk and pays claims from its own funds, typically contracting enrollment, claims processing and network access to a third party administrator. Level-funded is a self-funded arrangement wearing a fixed monthly payment: the sponsor makes set monthly payments covering estimated claims, administration and stop-loss premium, a year that runs under budget may produce a refund or a surplus carried forward, and a year that runs over may push the following year’s payments up.

Federal regulators describing that arrangement flagged the buyer-side risk in their own words: small employers moving from fully-insured coverage to level-funded arrangements “may be unaware that the self-funded plans they are offering to their employees may not include certain benefits that would have to be covered if the plan were fully-insured.” If a Tennessee proposal in front of you is level-funded, that sentence is the one to hold it up against.

What the network letters describe

HMO, PPO, EPO and HSA-eligible describe how a plan’s network gates care, not how rich the benefits are. An HMO generally will not cover out-of-network care except in an emergency and may require you to live or work in its service area. A PPO contracts with a network and you pay less inside it, with out-of-network care available at additional cost. An EPO covers services only through in-network providers except in an emergency. A high deductible health plan carries a higher deductible and can be paired with a health savings account, which is why the federal materials now more often call it an HSA-eligible plan.

Pre-tax employee contributions need a written plan

If employees are going to pay their share of premium before tax rather than after, the mechanism is a cafeteria plan under Section 125, and the thing to know is that it is “a written plan that allows your employees to choose between receiving cash or taxable benefits, instead of certain qualified benefits for which the law provides an exclusion from wages.” Accident and health benefits are a permitted qualified benefit. Without that plan document actually in place, employee contributions come out after tax. It is a document you either have or do not have, and first-time buyers routinely assume it comes attached to the insurance. It does not.

Where Tennessee’s own rules can be read, and where they cannot

One last piece of ground truth, because it affects what you can check for yourself.

Tennessee’s administrative rules are readable. The Secretary of State publishes the Official Compilation of Rules and Regulations, and the insurance chapters — including the chapter governing form and rate filings for health coverage subject to the Affordable Care Act — download as ordinary documents with real text in them. Tennessee’s enacted acts are published the same way, as primary-source documents from the Secretary of State, which is how we were able to read the marketplace definition quoted earlier straight out of the act itself.

Tennessee’s codified compilation is a different story. The Department of Commerce and Insurance publishes a “Laws” link and tells visitors to use it to review Tennessee insurance statutes under Title 56. That link redirects to a subscription legal research container, and what comes back to an ordinary visitor is a small page containing a browser check and a redirect instruction, with no statutory text in it at any point. So on this site, where a Tennessee statute could not be read, we say so rather than quoting someone else’s summary of it — and we do not confuse that with the rules and the acts, which can be read and which is where the Tennessee material above comes from.

The regulator behind all of it, named exactly: the Tennessee Department of Commerce and Insurance, Insurance Division. Not a standalone department of insurance — a division inside a department that also houses securities regulation, the professional licensing boards, TennCare oversight and fire prevention.