Which is Cheaper, Group or Individual Health Insurance?

Like many of you, I had always been told and assumed that group health insurance was always going to be cheaper than individual health insurance. For many people still working for large companies, this is probably the case. However, this is not true for everyone, and especially now because of changes to healthcare imposed by the Affordable Care Act(Obamacare).

First of all, Obamacare changed a few rules that used to give group health insurance an advantage over individual in a lot of cases.
-Insurance companies can no longer deny coverage or charge higher rates to individuals with a
pre-existing condition.
-All plans have maternity coverage included
-All plans offer preventative services
The only way these features are not true for your current plan is if the plan was "grandfathered", meaning it was a plan that was in force pre-obamacare that was allowed to continue, as long as no major changes were made.

With those features, the playing field was leveled a bit between most group plans and individual health insurance plans. The real deciding factor now into whether group or individual health insurance is more affordable is the employee group in question.

Group Insurance is owned by the employer and can be offered to eligible employees and their family memebers. Employers are required to pay a minimum portion of the employee's premium, although they can pay half or even all of an employees premium. Some large companies offer multiple plans to their employees so that they can pick a plan that works best for the employee and their family. The NC State Employee Health Insurance through Blue Cross and Blue Shield is good example: they offer three different health insurance plan options and they will pay all of the premium for the employee(employee only) for a particular level of coverage. In cases like this, it would be very unusual for the employee to opt out and shop on the individual market.


However, for many smaller groups of employees, group insurance is NOT the most affordable option.

Here is the reason: The premium paid by employers for their group policies is typically increased every year based on the previous year's healthcare costs of the employee group.

In a small group of employees, this means that if one or two employees has a baby, a major/chronic illness, or an accident, the next year will see a major increase in everyone's rate. The insurance company's risk is spread equally over the group.

In contrast, when insurance companies offer an "individual"(meaning for one person, or one family) insurance plan, they offer it to a much larger, more diverse group of people. The insurance company's risk for that plan is spread out over thousands, maybe even millions of people, depending on the plan and the carrier. In many cases, this drives down the cost and makes an individual insurance plan competitive, if not cheaper than some group plans.

For example: Previously, I was enrolled in a group health insurance policy for a company with less than 50 employees. Our plan was an HSA(Health Savings Account) plan with a moderate deductible($2500 for employee only) and an HSA Account that I contributed a small amount of tax free money to so that I could use the HSA debit card to pay for health expenditures. Once my daughter was born, I added her to the policy, which increased my deductible to $5000. 

Now, I am enrolled in an individual PPO (Preferred Provider Organization) health plan for myself and my daughter with copays for primary care and specialist etc., and a modest $3000 deductible. I am paying only about $50 more per month now than I paid for my group plan in monthly premiums, and yet I have a lower deductible and copays when I visit the doctor. Since, formerly, I was on a group plan, that means that my employer was also paying something towards my monthly premium. Looking at what I know now, I can see that I am really paying less for a better plan than I had while on group insurance.

 I am not pointing a finger at my former employers, because this has nothing to do with them. The issue was our group. While I was employed there, 11 babies were born within about 2 years. Yeah that's right...11. One of them was mine. Not only that, but we had several employees with health problems. Our group's risk was enormous! And because of our collective risk, our employer and each individual employee was paying more for their premium, whether they themselves were filing any claims or not.

While we are at it, it is also less expensive for my daughter and me to have a separate individual health plan, rather than to be added to my husband's group health plan with the NC State Employees, even without a federal subsidy .The individual health insurance plan we are on is very similar to the group's plan. To be clear, if your employer offers group health insurance, or your spouse's employer offers group health insurance, and you decide to go with an individual health insurance plan instead, you are not eligible for subsidies from the federal government.

At last, the point I am trying to illustrate with these examples is that the comparison between group health insurance and individual health insurance is not cut and dry. Some groups' premiums will be much cheaper than individual health insurance, but it depends on how big your group is, and who is in your group. Employers: if you have a small number of employees, group insurance may not be the cheapest choice for you and your employees. There are other options.Employees: if your company offers group insurance, do not take it blindly, assuming that it will be cheaper than what you can get individually.

As open enrollment for 2016 rolls around (November 1st-January 31st), make sure that you weigh all of your options. Give me a call, and I can help you explore the plans that are out there and compare them to what may be offered in your group. Even if you don't save money, we may find a plan that is better for the same cost.