Explanation of Health Reform ActMARCH 5, 2014
“Why Individual Health insurance is more expensive Than Group Health Insurance”
For most employees, individual health insurance costs less than group health insurance.
And, as of 2014, individual health plans have new advantages.
To understand why individual health insurance is more affordable than group health
insurance, you need to understand how each type of insurance works.
Group Health Insurance:
Group health insurance is a type of policy purchased by an employer and offered to eligible
employees of the company, and to eligible dependents of employees. The premium cost is
typically split between the employer and employee, and there is a minimum percentage
rate the employer must contribute to the premiums. The premiums typically increase 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 –
the number of employees you’re covering.”
Individual Health Insurance:
Individual health insurance is a type of policy an individual purchases for himself and/or
his family. Starting in 2014, all individual health plans must cover employees regardless
of health. For example, a healthy non-smoking 40-year old employee will pay the same
as a non-smoking 40-year employee with a medical condition. Premiums cannot be
increased because of health conditions.
“With individual health insurance, the risk is spread over a large group of people
– hundreds of thousands, even millions depending on the plan and carrier.”
If you’ve never heard of individual health insurance before, you’re not alone. Prior to health
care reform, less than 10% of the US population had this type of insurance.
Most people purchased insurance through their employer. However, with the rise of
defined contribution health benefits and the Affordable Care Act, the number of
people with individual health insurance is expected to grow exponentially.
Now, it’s becoming normal for employees to purchase a plan on their own –
just like car insurance.
On Average, Individual Health Insurance Costs Less Than Group Health Insurance:
Individual health insurance costs less, on average, than group health insurance. Let’s look at
the numbers. In 2012, employers paid on average $3,335 more a year for group health
insurance than employees would pay if they purchased a plan on their own. For family
coverage, employers paid over $10,800 more a year.
The cost of group health insurance is not sustainable – especially for small businesses. In
2012, 61% of small businesses said “cost” was the primary reason they did not offer
#traditional group health insurance.
Why Would You Pay So Much More for the Same Coverage? Prior to 2014 …
Before health care reform, individual health insurance plans and group health insurance
plans were different. Individual health insurance plans could deny coverage or charge
more for coverage based on health conditions. One reason employers offered group health
insurance (despite the higher price tag) was because they worried about sick employees not
being able to find coverage with an individual health plan. With group health insurance,
everyone is covered – no questions asked.
But as of 2014…
The playing field is leveled. Individual health insurance plans are guaranteed-issue so all
employees can find coverage regardless of health. In fact, many of the new health care
reform provisions greatly favor individual health insurance. Individual health insurance is
now just as good (and in most cases better) than group health insurance. Employers can
continue to contribute by using a defined contribution plan. In this scenario, which would
How Much Will Health Insurance Cost in 2014?
On average, individual health insurance will cost employees less than group health insurance in 2014.
Most employees will be eligible for discounts on individual health plans, decreasing the cost significantly.
Nationwide, individual and small group health insurance plans in 2014 will receive federal tax subsidies through the federally-run health insurance exchanges.
Income level examples are shown on charts at http://www.healthcare.gov
How Do the Discounts (“Health Insurance Tax Credits”) Work?
As of 2014, the federal government is providing discounts for health insurance to eligible
individuals and families. The discounts, called “health insurance tax credits”, help many
employees buy affordable individual or family health insurance coverage through the
new state health insurance exchanges (“marketplaces”).
Who is Eligible?
Employees who meet certain income requirements and who do not have access to
affordable health insurance through an employer or another government program
are eligible for a discount. Eligibility is based on a standard called the “federal
poverty level” (FPL). The tax credits cap the cost of health insurance
between 2% and 9.5% of annual household income, on a sliding scale
based on income. Individuals and families who earn up to 400% of FPL may be
eligible. This translates to an individual earning up to $45,960 in 2013 and a
family of four earning up to $94,200 in 2013.
100% 133% 150% 200% 300% 400%
Premium as % of income
0% – 2% 0% – 3% 4% 6.3% 9.5% 9.5%
1. $11,490 $15,282 $17,235 $22,980 $ 34,470 $45,960
2. $15,510 $20,628 $23,265 $31,020 $46,530 $62,040
3. $19,530 $25,975 $29,295 $39,060 $58,590 $78,120
4. $23,550 $31,322 $35,325 $47,100 $70,650 $94,200
On average, individual health insurance is more affordable than group health insurance.
Using individual health insurance as the foundation of employee health benefits is less
financially risky for small businesses. With group health insurance, if one employee has a
baby, a surgery, or is diagnosed with a chronic illness, you are likely to see a large premium
rate increase at renewal time. This is not the case with individual health insurance. By
using a pure defined contribution approach (where employees purchase individual
health insurance and the business reimburses them), the business has total
The Future of Employee Health Benefits is Defined Contribution Paired with Individual
Because of the affordability of individual health insurance, compared with group health
insurance, most (if not all) small businesses are offering employee health benefits with a
pure defined contribution approach. With this type of strategy, the business offers
employees a healthcare allowance that employees can spend on purchasing individual
health insurance. With health care reform, all employees are guaranteed coverage and
many will have access to the health insurance tax credits. Employees purchase the plan
that best fits their personal health needs. Employers have complete cost predictability and
there are no minimum or maximum contribution amounts.
With the new advantages and affordability of individual health insurance, why would
a small business offer group health insurance?
For more information, or to set up a consultation, please email, Beverly Blankenship @ email@example.comExplanation of Health Reform Act
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