What are the Differences Between Group Health Insurance and Individual Health Insurance?
With healthcare costs continuing to rise, some small employers that aren’t obligated to offer health/medical insurance per the Affordable Care Act’s (ACA) “employer mandate” have been dropping group coverage. Some larger employers have also considered doing the same (though, they must pay steep ACA penalties if they do). At first glance, it might seem like this would boost the individual insurance market. Unfortunately, increased costs and fewer options have put a serious squeeze on what was once a very healthy marketplace.
The definition of a “small business” varies greatly depending on the metric used. For this article, a small business is one with less than 50 full-time employees. This is the threshold in the ACA for determining whether an employer MUST offer health insurance to its employees. Companies with fewer than 50 employees are not subject to the employer “shared responsibility mandate” provisions of the ACA.
Confronted with rising costs across the board, as well as the long road back from the recession, many small companies decided the high costs of health coverage just weren’t within their financial means. Additionally, public exchanges under the ACA made it possible for workers at small companies to purchase their own coverage — with subsidies for those whose incomes fall below 400 percent of the federal poverty level.
The Practical Differences
Advantages of Group Health Insurance
- Relatively high levels of benefits are mandated by the ACA or by the states.
- Large employers must make coverage “affordable” to employees under the ACA
- Employers usually pay at least half of the employee cost
- Generally many choices of competing insurance carriers
- Coverage is guaranteed if application is made during open enrollment
- Employee contributions can be made “pre-tax” through salary reduction (section 125)
Disadvantages of Group Health Insurance
- Average or “composite rating” may favor older employees over younger workers
- Choices of coverage are usually dictated by the employer
- Group insurance plans are not portable (COBRA continuation is costly)
Advantages of Individual Health Insurance
- Coverage is portable and not tied to employment
- Individual chooses their own coverage level from the market
- Depending on income, premium and out-of-pocket costs may be subsidized by the federal government under the ACA
Disadvantages of Individual Health Insurance
- Choice of plans and insurance companies is becoming quite limited as carriers drop out of the “ObamaCare” exchanges
- Uncertainty of federal payments to insurance to offset losses has been uneven and is now threatened
- Costs are rising quickly as losses increase at carriers
- Premium payments not available pre-tax
Employers and individuals are often left walking a thin line between what’s affordable for them and what is reasonable coverage. This is where an experienced benefits advisor can help companies find what works for them based on their company culture, competitive environment, and budget.