Group health insurance plans have traditionally been a popular choice for employer-sponsored health benefits. However, more employers are embracing reimbursement models, like health reimbursement arrangements (HRAs), to provide quality essential health benefits to their employees.
Plans like HRAs allow you to reimburse your employees, tax-free, for their own individual health insurance. This is a win-win scenario for your organization and employees for many reasons. So, why should your employees purchase individual health plans?
This article will cover the top five advantages of individual health insurance that apply to both employers and employees.
Why provide health benefits?
Before we get to our list of advantages of individual health coverage, let's cover why your organization should provide health benefits.
Providing employee benefits, such as medical care coverage, helps you attract and retain employees. If you're struggling to retain workers, offering a health benefit is a great place to start.
Our 2022 Employee Benefits Survey Report found that 87% of employees value health benefits such as health insurance.
Benefits can also make your job postings stand out, helping you attract top talent. Our Employee Benefits Survey Report found 82% of employees said the benefits package an employer offers is an important factor in whether or not they accept a job with an organization.
Health benefits can also increase employee morale and reduce absenteeism, as your employees will be healthier.
What are the benefits of health insurance?
Health benefits protect your employees from financial losses due to rising healthcare costs. Individual health insurance plans can cover a variety of expenses.
All marketplace plans through the Affordable Care Act (ACA) cover:
Ambulatory patient services (outpatient care that doesn't involve being admitted to the hospital)
Hospitalization, such as surgery
Pregnancy, maternity, and newborn care services
Mental health services
Substance abuse disorder services
Individual health insurance programs aren't required to provide adult vision coverage or adult dental coverage, but they do include coverage for children's dental and vision costs.
All marketplace plans must provide additional benefits such as birth control and breastfeeding coverage.
Advantages of individual health plans
There are many advantages to individual health insurance plans over traditional group health insurance. We'll cover the top five advantages in the following sections.
1. Cost of individual health plans
Looking at the cost of group health insurance plans over the years, you'll see that they've steadily risen. As group health insurance premiums get more expensive, it becomes more difficult for small- and medium-sized organizations to afford essential health benefits for their employees.
Not to mention the annual rate hikes that inevitably come once it's time to renew your plan. On the other hand, individual policies are generally more affordable.
What's more, by offering an HRA, you can give your employees a set monthly allowance to spend on their health insurance premiums and qualifying medical expenses, making it easy and consistent to budget for every month.
2. Availability of discounts
Not only are individual insurance premiums more affordable to begin with, but employees can also qualify for additional financial assistance on their premiums.
These discounts, known as health insurance subsidies, or premium tax credits, were created to help low-income Americans get affordable health coverage through the health insurance marketplaces.
If you offer a group health insurance policy that your employees can't afford, there are no subsidies available to help them make payments. That means their only option is to opt out of the coverage, leaving them uninsured and less likely to stay working at your organization.
It's important to note that if you offer an HRA, your employee may need to coordinate their premium tax credit with their HRA allowance, or choose between the two, depending on the type of HRA you're offering.
You can also offer a health stipend to your employees if you have workers who receive advance premium tax credits. However, employee stipends are taxable for employers and employees, making HRAs a better option for most organizations.
While most employees are thankful for the group health insurance plan their employer offers, they don't get any say in what kind of plan they ultimately end up with. That means they'll be lumped into a one-size-fits-all plan without any choice on their network, coinsurance, or premium cost.
By reimbursing your employees for their individual health insurance instead, they can choose a personalized plan that works with their current doctors, healthcare providers, and budget. If your employees need chronic disease management or special medical equipment, they can choose the plan that best fits their needs.
Traditional group plans are full of strict requirements that can be hard for small and medium-sized business owners to meet.
For example, many insurance companies require that a minimum number of employees are enrolled in the plan. If you have employees that are on a spouse's or parent's plan, enrolled in Medicare, or simply don't want the coverage, you may not meet the participation requirements, which means you can't offer the plan to those who do want it.
Moreover, group health insurance plans also have minimum contribution requirements, typically mandating that employers cover at least 50% of employees' premiums. If you can't afford to cover that much, you won't be able to offer the plan.
Reimbursing your employees for their individual health insurance policies keeps you from following these strict group requirements. This gives you the flexibility to contribute what you can afford and allows you to offer the benefit to any number of employees, depending on the plan you choose to set up.
Unlike group health insurance, individual health insurance policies are entirely portable, meaning your employees can take their policy with them even after they leave your organization.
Reimbursing your employees for their individual health insurance with an HRA allows you to offer a formal health benefit that takes care of your employees while also empowering them to make their own healthcare decisions that aren't dependent on their employment.
There are many advantages to offering reimbursement for employees' individual health insurance plans instead of a group plan.
Offering a tax-free HRA to employees for their individual health insurance is an excellent way to contribute to your employees' healthcare while empowering them to choose an individual plan that works for them.
If you want to offer personalized health benefits to your employees, PeopleKeep can help. Our HRA and employee stipend benefits administration software makes it easy to set up and manage your benefits in minutes each month.
This blog article was originally published on October 2, 2013. It was last updated on December 8, 2022.