There is a huge misconception out there that in case you own a business, you have a better deal on medical insurance. The fact is, many “group” medical insurance plans come with higher cost than individual health policies.
For the small business operator with 5-7 employees or much less, offering to reimburse employees for his or her individual health insurance policies through an HRA (Health Reimbursement Arrangement) can prove a substantial cost savings to the company, while giving more freedom of medical insurance plan choice to their employees.
In addition, the employees ‘own’ their individual plans, which means there’s no need for COBRA coverage whenever they leave their current employer. Since businesses smaller than 20 employees don’t offer COBRA coverage anyway, individual plans become even more attractive.
The biggest advantage of individual health plans over modest group plans is price. Individual health plans typically offer lower premiums than similar group strategies. The reason is risk. Individual health insurance in Washington State uses a health risk questionnaire be completed within the application process. The purpose of the health questionnaire is to ‘weed out’ the greater risk applicants with significant health threats.
Most people pass the questionnaire with ease. When they do, they get into the same group as the competition who also passed the similar questionnaire, which represents a lower ‘risk’ towards the insurance company, thus lowering costs. (Those who do not pass the medical questionnaire are provided the opportunity to sign up on the Washington State Health care insurance Pool, a high-risk pool with significantly higher premiums) If your business has an employee who not pass the health customer survey, then it can still prove cheaper to cover the high risk pool premium with the individual employee versus paying higher group rates for many employees.
Group plans in Washington will not have a health questionnaire, so the insurance firm has no way of ‘weeding out’ your unhealthy employees. The rates use a ‘built in’ risk factor, regardless of whether warranted or not, because the insurer doesn’t have a way of separating the risky groups from the low risk.
Groups of 2-50 employees are ‘community rated’ meaning these are in the same risk swimming whether their employees have minimal utilization or high. Therefore, the small business with healthy employees ultimately ends up paying a higher rate because of other businesses who may have employees with expensive high risk chronic illnesses.
Offering individual health plans to employees includes more advantages than just price reduction. They also come with much less administration. Unlike ‘group” plans, there are no ‘renewals’ each year to plod through, no minimum participation requirements charged by insurance carriers, and not any minimum employer contribution requirements, possibly. Employers still have the ability to define eligibility, probation periods, which enables it to design their health benefit package with an increase of options and flexibility.