Zane Benefits, which provides small businesses with comprehensive and flexible alternatives to traditional group health insurance, today published findings on the growth of individual health insurance.
This created an up to 2-for-1 tax advantage (depending on the income tax bracket of the employee) for employer health benefits provided by employers versus individual health insurance policies, purchased by employees themselves.
Today, most employers offer their employees group health benefits and typically pay 50%-100% of the cost for employees who participate. If the employer’s plan allows, employees are also permitted to contribute pre-tax funds (through salary reduction) to add their dependents to the employer group plan.
Employer healthcare costs (and group insurance premiums) have been increasing the past ten years at 3-4 times the rate of general inflation. In response to the rising costs of group coverage, employers have been reducing health benefits, increasing the employee (and especially dependent) cost to participate, or even cutting out health benefits entirely.
Employees who work for companies that do not have a group health policy, or for companies that do not offer participation in a group health policy at rates they can afford, purchase their own individual health insurance policy directly from an insurance carrier such as WellPoint,
A major cost increase for employees the past few years has been the cost of adding a spouse or dependent to their employer’s group plan. Employers have drastically reduced the amount they contribute to spouses and dependents in response to rising group plan expenses.
Individual health insurance today in 45 states costs 1/2 the price of employer group coverage for the 70%-90% of applicants who medically qualify
Individual health insurance, which used to cost much more than employer-sponsored group insurance, now costs healthy new applicants 1/2 the price of comparable employer-sponsored group policies in 45 states. And, if health care reform stands, in 2014, most individuals and families will receive a massive subsidy from the federal government to buy individual health insurance through an exchange.
The dramatic relative price change between individual versus group policies has occurred because 45 U.S. states allow insurance carriers to distribute individual health insurance with medical underwriting. Allowing medical underwriting means that insurance carriers may reject, accept, or uprate (i.e. charge more for) applicants based on their health status or age. KY, WA, and NH changed in 2003 to allow medical underwriting.
In contrast, in
In a typical non-geriatric population group, 20% of the people incur 80% of the healthcare costs, and 80% of the people incur 20% of the healthcare costs. Individual health insurance carriers only accept the healthy 70%-90% of applicants at typically 50% of the premium cost of group policies. Once accepted, states require that the carrier cannot increase premiums based on the insured’s subsequent health, but can raise individual health insurance premiums based on the cost of all insured individuals in a large geographic pool—typically a pool of very healthy individuals with individual health policies.
Once a person obtains an individual health policy, they can renew it until age 65 regardless of employment and their premium cannot be increased solely due to their own very large claim (e.g.
The number of people buying individual health policies is growing rapidly. In a 2007 report,
This estimate may be conservative given recent regulatory changes by the federal government affecting individual health insurance. Some of these regulatory changes include:
(1) Employers can now use HRAs to reimburse
(2) HIPAA Now Requires States to offer Guaranteed-Issue Individual Health Plans to Uninsurable Individuals
Since 2006, the Federal Government requires all states to offer guaranteed-issue “state risk pool” individual and family coverage to employees and dependents with preexisting medical conditions that lose their employer-sponsored health benefits. Forty states go beyond the federal mandate and offer such state-guaranteed coverage to any resident who is charged more or rejected for individual health insurance. However, state-guaranteed coverage is expensive: the federal government suggests states charge 300% the cost of similar coverage for healthy people.
(3) Health Reform Requires a
In July, 2010, the health reform bill created the Pre-Existing Condition Exclusion Plan (PCIP) to provide health insurance coverage to uninsurable citizens. More than 20 states (including
Summary of Individual Health Insurance Today
Individual Health Insurance is the fastest growing sector of the health insurance industry, expected to increase from 19 million to 35 million policies from 2007 to 2012.
Employers can pay premiums as a tax-free benefit through HRAs; and
Employees can pay premiums on a pre-tax basis through Premium Reimbursement Arrangements (PRAs, also called “Premium Only Plans”).
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