Posts Tagged ‘Employer Paid Group Health’

Health Insurance: Group Vs. Health

Tuesday, January 10th, 2012

 

A client had the opportunity to participate in a group plan through their employer but was somewhat distressed (shocked, actually) at the cost. I asked if they had ever sought out comparative rates in the individual market. Their immediate response was the assumption that group health insurance was less expensive.

 

This was not the first person that I have spoken to that had that impression. In reality, individual and group insurance are two completely different contracts, subject to different rules and are therefore priced differently.

 

Past Trends

Group insurance obtained through an employer is often thought to be the most economical way to obtain health insurance. Unfortunately, this is not always the case.

 

When employers paid for all or most of their employee’s health premiums, group coverage was the way to go in most cases. That was before the explosion of health care costs and economic downturn.

 

Today, while many companies struggle to keep their doors open, the necessity for cost sharing is a must. Employees are being asked to pay a larger share, if not all, of their health insurance premiums.

 

Bearing this in mind, it is beneficial to understand the moving parts and reasons why it may be beneficial to explore the option of obtaining individual insurance rather than group health insurance.

 

Group Pricing

One of the main benefits of obtaining insurance through the group market is that the insurance is guaranteed issue. This means that you can get covered through the plan regardless of any pre-existing health issues. While this is a tremendous positive for someone who has a pre-existing condition, it can be an extra burden for those without:

 

Insurance companies may assess a rating factor that is equally allocated among the participants of a particular group to actuarially account for the acceptance of individuals who may otherwise be excluded from coverage.

 

Translation: If a group is rated up 40% because someone has a preexisting condition, each and every person who obtains their insurance through that group contract will bear a premium increase by that amount. Herein lays one of the reasons why group insurance may not be as economical as one would think.

 

Typically, insurance companies will also have one set rate for single employees, one for employee and spouse and one for families. A 20 year old will therefore be paying the same individual rate as a sixty year old.  Similarly, if you opt for family coverage, your rate is the same whether you have one child covered in the plan or a brood of 10.

 

Individual Pricing

The main drawback on individual contracts is they have to be underwritten. Insurance companies review medical records and coordinate their findings to a list of standard criteria before individual coverage is offered. The upside to the underwriting process is that the cost of claims tends to be lower and therefore can be reflected in lower premiums to younger, healthy people.

 

One of the most attractive benefits of the individual market is the freedom to tailor a plan to suit your personal needs and budget. More affordable premiums can be had by omitting the types of bells and whistles which are sometimes standard to employer paid and subsidized plans.

 

Individual coverage also provides portability. You can take an individual plan forward with you if you leave your current employer by choice, through downsizing, retirement or any other event. Conversely, group insurance will restrict you to 1 year if your company falls under the jurisdiction of Illinois Continuation or 18 months under COBRA.

 

Wrap Up

Common assumptions are often erroneous regarding today’s health insurance costs.

There is no right or wrong choice between individual and group health insurance.

Current trends now dictate the need for thorough examinations of all market options.

 

Kurt Rusch CLU, ChFC