In the face of the rising cost of providing group health insurance, the Affordable Care Act has made it easier and cheaper for most individuals to buy their own insurance. Many business owners will replace their group policy with a defined contribution plan that offers a stipend to employees to buy the health insurance that best suits them. This means everyone wins.
1. It’s customizable
The old-style group plans forced employees into a one-size-fits-all box. With individual health insurance, they don’t have to settle. Each employee can choose a plan with features, such as premiums, deductibles and provider networks, that make the most sense for the employee and her family.
2. It’s far more affordable
On average, policies sold in the Health Insurance Marketplace are 20–60% less expensive than group plans. This is great news for employees who have had to pay a high percentage of their monthly premium. Most families earning less than $100,000 a year qualify for a monthly federal subsidy. This year, after-subsidy cost was about a quarter of the cost of comparable employer-provided coverage.
Consider these figures from the Kaiser 2013 Annual Employer Health Benefits Survey: The average cost of individual health insurance for an employee was $3,080 a year, and for a family it was $6,674 a year. By comparison, the cost for traditional employee health insurance was far higher: $5,884 for an employee and a whopping $16,351 for a family.
3. It’s stable
In a small company with a group plan, if one employee gets diabetes, insurance costs might very well double the next year. And if there are two catastrophic illnesses, you can imagine the financial fallout.
The choice is usually this: Stick employees with huge premiums, cancel the insurance or go out of business. This is not so with individual plans. Because employees are in much larger groups, prices rise far more slowly—and if the plan is subsidized, the cost can go up only if household income does, too.
4. It’s portable
In the past, health insurance was linked to a job. If an employee wanted to change jobs—or had to change jobs—her health insurance changed, too. And if the employee or a covered family member happened to become ill, suddenly there was a preexisting condition to worry about. Now when an employee leaves, the health insurance goes with her.
5. It’s permanent
Employers can cancel their group insurance at any time with no COBRA available. With individual health insurance, the employee controls the policy. If the monthly premium is paid, her coverage cannot be canceled for any reason.
6. It’s good for everyone
In the past, crippling health insurance costs have kept employers from hiring new talent. That burden is now lifted. Plus, leaders can focus on improving products and services rather than managing health insurance. All of this leads to healthier companies—which leads to happier employees who can stay employed.
7. It’s virtually mistake-proof
Shopping for individual policies is easy. Federal regulations require all health insurance plans on the exchange to meet a minimum level of coverage. Employees can work directly with an insurance agent if they don’t want to go to the exchanges themselves.
If an employee chooses a policy that doesn’t work as well for her family, the employee can correct the mistake during the next open enrollment.
Paul Zane Pilzer is the founder of six companies, including the two largest U.S. suppliers of personalized employee health benefits, Extend Health (1999) and Zane Benefits (2006).
Rick Lindquist is president of Zane Benefits, Inc., the U.S. leader in individual health insurance reimbursement for small businesses.
