Group vs. Individual Insurance – All Key Differences Explained

Monday, July 11, 2022 22:08 Posted by Admin

Offering health insurance is an excellent way to attract talented people to your company.

This key benefit relieves one of the biggest cost burdens your employees face. As they no longer need to worry about paying for their own insurance, they’re not thinking about possible health issues while working. The result is a more motivated and productive workforce that has a positive impact on your company’s bottom line.

Knowing this, you may be preparing to introduce health insurance into your company’s benefits package.

There’s just one problem.

You trying to figure out which comes out on top in the group vs individual health insurance battle. Should you offer a group policy that covers all (or at least the majority) of your employees? Or, should you create individual policies for select employees?

To answer those questions, you need to know the difference between group and individual health insurance. But before digging into the differences, you must understand what each policy offers to your employees.

What Is Group Health Insurance?

Group insurance is a health insurance policy that you’re able to extend to a group of people, such as employees. In some cases, you may also make this policy available to each employee’s spouse and their dependents.

As the employer offering the policy, you pay part or all of the monthly premiums on the policy. Of course, the total you pay increases as you add more people to the policy. This higher total cost is counterbalanced by certain tax benefits you gain access to if you offer group employer health insurance vs. individual health insurance.

What Is Individual Health Insurance?

As the name implies, an individual health insurance policy applies to a single person. Typically, people purchase these policies for themselves if their employers don’t offer a group policy for them to join. However, your business has the option of funding individual policies for selected employees, which may be an option if you don’t wish to provide group health insurance to the majority of your people.

Individual insurance provides the policyholder with more control over their coverage. But it also makes them responsible for managing and paying for their own coverage. Though you may mitigate this responsibility as an employer by paying for the coverage, the policy ultimately belongs to the person whose name is on the contract.

Group Insurance vs. Individual Insurance – The Key Differences

You can cover more people if your business offers insurance for a group. Individual health insurance may work best if you have a small number of key employees you want to cover. But beyond that main difference, there are several other ways that group and individual policies vary. Each may impact your decision when it comes to group versus individual health insurance.

Difference No. 1 – The Policy Purchaser

With individual health insurance, the responsibility for buying the policy lies with the individual. Group health insurance plans are paid for by the employer. But this isn’t a hard and fast difference. Many employers offer policies where they make partial payments, with the employee paying the rest of the premium for their chunk of the policy. And as mentioned, some employers may fund individual policies by providing employees with stipends or bonuses to cover their costs.

Difference No. 2 – Control

With an individual insurance policy, the employee has full control. They choose what the policy covers, what it doesn’t, and what they pay for it. The employee can also choose to end the policy at any point, even if the employer provides some sort of funding towards the policy’s premiums.

With group insurance, the control rests with the employer. As the business owner, you’ve created the policy so you get to choose what it covers. Do you want to pay all of the premiums or part of them? Should the policy cover spouses and dependents? How extensive will the coverage be? It’s up to you. The only area where employee control comes in is if you decide to allow policy add-ons. Your employee decides if they want the add-ons, for which they’ll usually pay. But you choose if those add-ons are available in the first place.

Difference No. 3 – The Cost

Is group health insurance cheaper than individual insurance?

It depends on how you look at it.

In terms of the total amount spent, you’ll pay more for a group policy than you would an individual policy. That makes sense. A group policy can potentially cover dozens, or even hundreds, of people. You pay premiums for each person included in the policy, which soon add up. Of course, an individual policy only requires the payment of one person’s premiums.

However, the cost issue changes when we look at how much is paid by the individual. Group health insurance plans cost your employees less than individual plans. In 2021, the Kaiser Family Foundation found that the average individual spends $7,739 per year on health insurance. That equates to about $645 per month. If an employee is covered by a group plan, they may only pay a fraction of that monthly amount, assuming they pay anything at all. That’s why health insurance policies are such attractive employment benefits. When grappling with the group coverage vs. individual coverage issue, consider how the cost difference for the individual will benefit your employees.

As a final point, not offering group health insurance means a lower cost for your business. You don’t pay for individual health insurance unless you choose to offer a stipend toward coverage. If you’re looking at cost from a purely business perspective, you can save money by not offering group insurance. But you also lose a key employee benefit that many people look for when choosing who to work with.

Difference No. 4 – Qualification Criteria

The battle of group health insurance vs, individual health insurance heats up further when it comes to qualification criteria.

Individual policies are the simpler of the two.

For an individual policy, an insurer has a defined set of criteria that the potential policyholder needs to meet. Typically, the applicant must undergo a medical examination that determines if they have any pre-existing conditions that would affect the policy. In some cases, pre-existing conditions may be so severe that insurers are wary of providing a policy due to the risk involved. In others, a pre-existing condition may make the policy so cost-prohibitive that the applicant can’t afford to pay for it.

Either way, the individual has to meet set criteria before they can get an individual health insurance policy.

That’s not the case with group policies.

The individual doesn’t have to meet any criteria beyond being a full-time employee of your organization. As long as you’ve hired them for a full-time position, they can be included in the policy without going through any medical exams or similar tests. This is ideal for those with pre-existing conditions because it means they can get access to insurance via a group. Individual health insurance policies are much more prohibitive.

Though the employee doesn’t have to meet many qualifying criteria for group insurance, your business does. Thankfully, the criteria are fairly simple to meet.

For a small business of one-to-50 people to be eligible for group insurance, it must be a legal business entity according to the state it’s based in. Furthermore, the company must have at least one full-time employee who isn’t the owner or the owner’s spouse. This doesn’t mean the owner’s spouse can’t be included in a group policy. There just needs to be one other unrelated full-time employee in the business for the spouse to be eligible.

Sadly, this criterion means that sole traders who have no employees are not eligible for group policies. But in those cases, it’s often easier to get a group policy anyway.

Difference No. 5 – Tax Benefits

Though individual and group plans both offer tax benefits, the key difference lies in who those benefits apply to.

For individual policies, the policyholder is often able to deduct some of the cost of their premiums from their federal taxes. That’s because monthly premium payments are counted toward medical expenses. This applies to marketplace insurance policies, Medigap, and Medicare Parts B, C, and D. Medicare Part A policies are only tax-deductible if the individual pays for the policy themselves rather than having it paid via Social Security.

With group insurance, these benefits are not available to the individual. Group health insurance plans do offer deductions for employers, though. You can deduct the amount you pay for premiums per month from your business taxes.

However, there is one instance where the individual may experience tax benefits through a group policy. If an employee chooses an add-on that they pay for themselves, the money is taken from their pre-tax earnings. As a result, an employee may be able to reach a lower income tax bracket by combining health insurance add-ons with pre-tax contributions to other plans.

Difference No. 6 – Choice of Insurer

If an employee has to choose between group vs. individual insurance, they may look at the insurer the employer selects. With a group policy, the employee has no choice over the insurance company. Instead, the business owner selects who provides the cover, with the employee being added to the plan.

Somebody who takes out individual insurance gets to choose who provides the policy. This may not seem like a huge deal, especially if the employer pays for premiums under a group plan. But an employee may choose to go the individual route for this larger selection if the insurer that provides a group policy doesn’t offer the level of coverage the employee requires.

Difference No. 7 – Waiting Periods

Immediate access to healthcare is one of the biggest benefits of getting health insurance as part of a group. Individual health insurance usually requires the applicant to deal with a waiting period before they can access care, even if the policy itself is active. In some cases, this waiting period can stretch to the first day of the month that follows the month when the policyholder enrolled. Those with pre-existing conditions may have to wait even longer, with some waiting periods extending to 90 days.

Those waiting periods don’t exist for group policies, as long as the employer chooses not to implement them. Some employers may impose a waiting period of between 30 and 365 days for their policies, though this isn’t due to the policy itself. The employer may not want to provide health insurance to somebody until they’ve proven they’re going to stay with the company. As a business owner, this decision rests with you. Choosing to implement a waiting period may make group insurance less attractive as an employment benefit. By having no waiting period, you can provide immediate coverage to people with pre-existing conditions, thus increasing motivation and putting yourself in a position to attract more talent.

Difference No. 8 – Portability

Group health insurance plans aren’t usually portable. In other words, if an employee leaves your company, they lose access to the health plan your business provided to them. The employer owns the policy, rather than the employee.

Individual health insurance offers far greater portability because the policy is in the employee’s name. They can change jobs as many times as they want without worrying about losing the policy, as long as they maintain their monthly premiums. This can be a problem for the employee if their employer paid them a stipend for the individual policy. But generally speaking, somebody can maintain an individual health insurance policy for as long as they want, no matter what career changes they make.

Group vs. Individual Health Insurance – Make Your Choice

Now that you know the difference between group and individual health insurance, you face an important choice:

Should your company offer group insurance or leave employees to handle insurance on their own?

The latter choice saves money for your business and simplifies health insurance because you don’t have to deal with it. Choosing to offer group insurance allows you to offer a key (and costly) employment benefit that enables you to attract better talent. Plus, employees who feel like you’re taking care of them via a group policy are more motivated to produce better results for your company.

If you’re interested in group insurance, Taylor Benefits Insurance Agency is here to help.

We aid businesses in finding the right group insurance and implementing it into their benefits packages. We also provide annual policy reviews to ensure your company always has access to the best group policies. To find out more, tell us about your insurance needs online or call us at 800-903-6066.