Individual health insurance is more affordable compared to group health insurance, and under the ACA, individual plans have to cover everyone regardless of health. Individual health plans also provide subsidies to qualifying individuals. It is due to these benefits that small businesses design health benefits for their employees using individual health insurance. To understand this in a better manner let us see how both these types of health insurance work, and why individual health insurance proves to be more affordable compared to group health insurance.
Individual Health Insurance Vs. Group Health Insurance
Individual health insurance is a type of plan that an individual purchase for self and his family, and the plan is required to cover individual and his family regardless of their health conditions. People can purchase these plans taking the help of a health insurance agent or any health insurance portal, who can guide them in navigating through the different choices of a plan and pick the plan that best suits their health condition and budget. The premium cost of an individual plan is the same for everyone, irrespective of their medical condition. The premium cost is the same for everyone, as the risk is spread over a large group of people that may include hundreds, and even millions depending upon the plan and carrier.
People shop for individual plan themselves and choose a plan to cover them and their families. A person has to pay the entire cost of the plan along with the monthly premium and out-of-pocket costs of the plan. Individuals should have a good understanding of their plan and must manage all their health coverage and benefits.
Group health insurance is a type of health plan that is bought by an employer for its eligible employees of the company and for the eligible dependents of the employees. Over half of non-elderly Americans are presently receiving health coverage either through their employer, or the employer of a family member. The employer selects a group health insurance plan for its employees and the premium cost is shared between the employer and employee. However, there is a minimum percentage, which employers are required to contribute towards the premiums. The group health plan premium cost paid by the employer is generally increased every year depending upon the previous year’s healthcare cost of the employees. In group health insurance, the risk is spread over the company and the number of employees covered under the plan.
In group health insurance plans, individuals are given a choice of health insurance plans by their employers, who pay for all or some of their monthly premiums. The employee’s share of the monthly premium cost is deducted from their paycheck in each pay period. Employees receive the plan documents from their employers and all their queries regarding the plan are answered by their employers.
Health Reforms in 2014 changed the following two things
Individual health plans are required to cover the ten essential health benefits and are required to cover all individuals regardless of their health conditions. However, the changes will cause individual health plan premiums to increase from the current averages. In the majority of the states, individual health plan rates are still less expensive than small group health insurance plans.
In group health insurance if employees meet income requirements, then they become eligible for health insurance premium subsidies that lower the cost of their premium more. However, such employees cannot have access to group health insurance plan though if their businesses offer a reimbursement benefit plan, then businesses can reimburse the employees for the non-subsidized part of their health plan.
People always have a common question in mind that whether having an individual plan will be more affordable or having group health insurance will be economical. Individual health insurance plan proves to be more affordable than group health insurance because of the less risk involved in it. Since individual health insurance spreads the risk to a much larger group. Besides, individual health insurance as the base of employee health benefits is less risky for the small business. However, with a group health insurance plan, if any employee is diagnosed with a chronic illness or undergoes surgery, then employees are likely to see a large increase in the premium rate at annual renewal time.
Individuals Plans have Edge over Small Group Health Plans
Since individual health insurance plans are affordable compared to the group health insurance plan, most of the small businesses are using a defined contribution approach along with individual health insurance to offer employees health plans. With this strategy, the business offers employees a health insurance allowance which employees spend on purchasing individual health insurance. After health reform, employees have guaranteed coverage and also have access to health insurance subsidies. Due to the advantages and affordability of individual health insurance, small businesses do not prefer to offer group health insurance plans.