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Tell your small-business employer NOT to provide you with group health insurance

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In the recent past—like before 2014—the main provider of health coverage for individuals and families has been group insurance provided by a relationship with an employer who offered such coverage as a benefit. The best solution for a family leaving an employer and the health coverage provided was typically through COBRA, often at unaffordable premium rates.

With the Affordable Care Act, aka Obama Care, aka Health Reform, the tie to an employer’s plan becomes only one choice as opposed to the only choice. As of 2014, individual health plans must cover all individuals regardless of health status, and new subsidies are available for qualifying individuals. Here's a look at how the two types of health insurance work, and why individual health insurance may actually be a better choice than group health insurance.

Individual Health Insurance
Individual health insurance is a type of health policy that an individual purchases for him or herself and/or family. Individual health insurance policies are often purchased with the guidance of an insurance agent to help navigate plan choices and premium costs. Starting in 2014, all individual health plans must cover people regardless of health status. In 2014, individual health insurance risk is spread over a large group of people -- hundreds of thousands, even millions depending on the plan and carrier.

Group health insurance coverage is a type of health policy that is purchased by an employer and is offered to eligible employees of the company, and typically to eligible dependents of employees. Currently, the majority of non-elderly Americans (56%) have group health insurance coverage through their employer, or the employer of a family member. With group health insurance, the employer selects the plan (or plans) to offer to employees. These days, the premium cost is usually split between the employer and employee. The premium paid by employers for their group policies is typically increased every year based on the previous year’s healthcare costs of the employee group. With group health insurance, the risk is spread over the company's employees only.

Individual Health Insurance vs. Group Health Insurance - Cost
Here's a look at the national average annual premium costs in 2012 of group health insurance plan compared to individual health insurance.

Single $2,280/yr

Family $4,944/yr

Group health insurance plan

Single $5,615/yr

Family $15,745/yr

Data Source: Employer Health Insurance Facts & Figures*

This is data from 2012, so a common question is what will happen to individual health insurance plan costs in 2014 with health reform changes. There are two considerations:

1. In 2014 individual plans are required to cover ten essential health benefits (more than what many plans covered pre-2014), and are required to cover all individuals regardless of health benefits. Previously, pre-2014 insurers could choose to accept only healthy individuals and/or charge more for unhealthy individuals. These two new changes will cause individual premium costs to increase from current averages. In most states, however, individual rates are still less expensive than small group health insurance coverage

2. Second, if employees meet income requirements (earn less than ~$46/year as an individual or less than ~$94k as a family of four), then they will be eligible for health insurance premium subsidies to lower the cost of their premium even more. To be eligible, employees cannot have access to a group health insurance plan. Another common question is whether employees will pay more or less than their current individual health insurance coverage.

Why Individual Health Insurance is More Affordable than Group Health Insurance
For the majority of small groups, individual health insurance is more affordable than group health insurance because of the size of the risk pool. As mentioned above, individual health insurance spreads the risk over a much larger group. Using individual health insurance as the foundation of employee health benefits is also less financially risky for the small business. Currently, with a group health insurance plan if one employee has a baby, a surgery, or is diagnosed with a chronic illness, they are likely to see a large premium rate increase at annual renewal time.

Small Businesses Using Hybrid Approach
Because of the affordability of individual health insurance, compared with group health insurance, many small businesses are becoming innovative. Small businesses can take a hybrid approach that offers employees a health insurance allowance that employees can spend on purchasing individual health insurance. With health reform, all employees are guaranteed coverage and have access to the health insurance subsidies. Employees purchase the plan that best fits their family's health needs. Why not embrace this win/win approach?



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