How Group Health and Individual Coverage Differs

Sunday, March 3, 2024 16:16 Posted by Admin
Cost of Individual vs Group Health Insurance

There are two main ways to buy private health insurance in the US—either through a group plan or as an individual. Group plans are a common benefit of employment. However, not everyone has access to participate in a group health insurance plan. Here, we’ll take a look at the key differences between group plans and individual coverage so that you can understand the real value of this benefit.

What is a Group Health Insurance Plan?

A group health plan pools premiums for a group of people together in order to provide more affordable private health insurance coverage. These plans spread the risk out across a group instead of evaluating the risk based on an individual.

With group health plans, your employer selects the plan options, and insurer and all employees are offered a choice from the employer-selected options. There may be different levels like a bronze, silver, or gold level that provides different coverage levels. Or, you may be able to choose between a traditional group plan and a high-deductible plan.

Key benefits of a group plan:

  • Your employer typically pays a portion of your premium.
  • Your premiums are automatically deducted through payroll.
  • Your employer handles annual enrollment and administrative work.
  • Group plans tend to offer better coverage at better prices.

Drawbacks of a group plan:

  • Limited choice of options
  • You may not be able to keep the same doctor.
  • Value is based on group size, may need to work for a large company to see significant cost-saving benefits.
  • Plans may change often.

What is an Individual Health Insurance Plan

For anyone who cannot get coverage through a group plan, the alternative is to shop for and purchase an individual insurance plan. While this option provides complete control over which insurance company you use and what elections you choose, the costs of individual plans are much higher.

Key benefits of an individual plan:

  • Choice of plans and providers.
  • Option for subsidies or discounts to make plans more affordable.
  • Better portability, benefits are not tied to employment.
  • May be able to claim premiums on your taxes.

Drawbacks of an individual plan:

  • High cost in some areas for comparable coverage to many group plans.
  • You pay premiums out of pocket.
  • High deductibles

Is Health Insurance Necessary?

Healthcare in the United States is privatized which means that patients are on the hook for any costs incurred. As the costs of healthcare continue to rise, now averaging $12,530 per person annually, health insurance may be the only way to maintain access to essential healthcare services.

Health insurance, either from an employer or purchased through an individual plan can help make healthcare more affordable. These plans can help individuals and families plan for medical expenses by providing some structure to their coverage. Policyholders know that they will always pay a deductible and their co-payments, as well as any applicable co-insurance up to their maximum out-of-pocket expense each year.

This means, instead of getting hit with a $45,000 hospital bill, an individual might only receive a bill for $10,200 (deductible + coinsurance) while the insurance company picks up the balance of $34,800.

Additionally, The Affordable Care Act passed in 2010 requires individuals to carry minimum basic health insurance. A 2019 change did away with the financial penalty for enforcement, but the original legislation still requires coverage.

Let’s See How They Measure Up

With group health insurance, your coverage is tied to your employment. If you become separated from your position your coverage will end. With individual insurance, your coverage is stable as long as you pay your premiums so you can change jobs or move without interruption or the need to pay for expensive COBRA coverage.

The good news is that if you have health conditions, both types of plans will cover pre-existing conditions. This used to be a big caveat to individual health insurance but changes with the Affordable Care Act have essentially nullified this convenient excuse to deny coverage.

Your costs for both are generally tax-deductible. With a group plan, your premiums are paid pre-tax and with an individual plan you can deduct your premiums when you file. Additionally, some group plans come with a health reimbursement arrangement (HRA) that may provide additional compensation or tax benefits.

Which One is Better: Group or Individual

Both group health plans and individual health plans have their pros and cons. It may not make any difference which one is better because those who don’t have access to a group plan don’t have any choice between the two.

Individual plans can be costly, but it really depends on what you choose and what your specific healthcare needs are. Similarly, some group plans like those offered through large employers can be great. But another group plan offered by a smaller company might not be.

Both will limit enrollment to a designated open-enrollment period. Outside of the enrollment period, you must have a qualifying life event in order to get or change insurance. Between the two, the general attitude is that group plans tend to be the better alternative if you have access to a good plan.

Written by Todd Taylor

Todd Taylor

Todd Taylor oversees most of the marketing and client administration for the agency with help of an incredible team. Todd is a seasoned benefits insurance broker with over 35 years of industry experience. As the Founder and CEO of Taylor Benefits Insurance Agency, Inc., he provides strategic consultations and high-quality support to ensure his clients’ competitive position in the market.

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