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Employer Health Insurance Versus individual plans

There are two major types of health insurance for small business owners to evaluate for themselves and employees: individual and family health insurance, or employer health insurance (small business/group health insurance). So what is the difference and which is better?

Individual and Family Plans

Individual and family health insurance plans are bought by an individual to cover themselves and/or their family.

Anybody can apply for an individual or family plan through an insurance broker, online, or health insurance marketplaces.

Until the Affordable Care Act (ACA) took full effect in 2014, carriers (in most states) denied or up-rated individual or family coverage based on pre-existing medical conditions. From 2014, all individual and family plans are guaranteed-issue and federal health insurance subsidies to lower the cost of the premium expense.

Some self-employed people who buy their own health insurance can deduct the cost of their monthly premiums.

Small employers, and some self-employed individuals, can set up a pure defined contribution plan to pay individual and family plans, tax-free.

The individual owns the plan, so coverage is not dependent on employment. Workers can take the policy with them when they leave the company or retire.

Like employer health insurance, individual health insurance covers medical costs for medical conditions, illnesses, and injuries. However, unlike health insurance from an employer, individual health insurance is something individual employees choose and pay for on their own.

Employer Health Insurance

Most individuals are familiar with employer health insurance, also known as group health insurance or group coverage. This is because, in the past, most persons have coverage through employer health insurance.

• With employer health insurance, an organization researches available plans to choose the insurance company and pick plan options for employees.
• Coverage is dependent on a person’s (or family member’s) employment. When an employee leaves the organization, the employer’s health insurance coverage terminates. While there are ways for employees to extend coverage if employer-based coverage ends (through COBRA), it is expensive and short-term.
• Coverage is guaranteed-issue for employees; hence, no individual underwriting.
• The employer health insurance costs are re-negotiated each year based on the group’s previous year’s health care costs.
• There are certain necessities for minimum participation. The employer can share the cost of the premium with workers, but there are minimum contribution amounts for the employer.

Employer Health Insurance vs. Individual Health Insurance

In the past, employer health insurance was the custom for health insurance coverage. Even to this day, most individuals don’t know that individual plans are available. But, the landscape of employer healthcare insurance plans is changing.

Resources and References:

• COBRA Health Insurance
• The Affordable Care Act