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Individual health insurance vs. group health insurance

Written by: Gabrielle Smith
October 17, 2021 at 2:02 PM

If you’re offering health benefits for the first time, or are considering changing up your benefits strategy, it's common for employers to compare a traditional group health insurance plan with individual health insurance reimbursement options, like health reimbursement arrangements (HRAs).

So how do individual health insurance and group health insurance compare? In this article, we’ll give a side-by-side comparison of the two health benefits options, including how they work, what they cover, how much they cost, and more. 

Are you a visual learner? Get our chart comparing group health insurance and HRAs

How does group health insurance work?

Group health insurance, sometimes called employer-sponsored coverage or group coverage, is a type of health insurance policy purchased by an employer and offered to the employer’s eligible employees and their eligible dependents. 

According to the Kaiser Family Foundation, nearly half of non-elderly Americans have group health insurance coverage through their employer or the employer of a family member. With group health insurance, the employer selects the plan, or plans, to offer to employees. The premium cost is often split between the employer and employee, and there is a minimum percentage rate the employer must contribute.

How does individual health insurance work? 

Individual health insurance, sometimes called employee-sponsored coverage or self-insured coverage, is a health insurance policy an individual purchases for themselves and/or their family. 

Individual health insurance policies are often purchased with the guidance of an insurance agent or broker to help navigate plan choices and premium costs. Insurance companies can’t deny coverage for preexisting medical conditions, and premium tax credits are available to those who qualify, based on income.

Employers can help employees pay for their individual health insurance by offering an HRA to reimburse their employees, tax-free, for their healthcare expenses. With an HRA, employers simply offer a monthly allowance for employees to spend on their premiums and any other qualifying medical expenses employees need. Any unused funds at the end of the year stay with the employer. 

Watch our 3-minute video for an overview of HRA-eligible expenses

How group and individual insurance compare

Here are the primary characteristics of individual health insurance compared to group health insurance and how they work for the employee and employer.

 

Group health insurance

Individual/family health insurance

Does coverage continue when an employee’s job is lost or changed?

Limited 

Yes

Does the employee get any choice on their medical providers?

Limited

Yes (you can choose any carrier).

Is there coverage of preexisting conditions?

Yes

Yes

Who purchases and owns the plan?

Employer

Employee

Are premiums tax-deductible?

Yes

Yes, if an HRA is set up by the employer.

Availability of premium tax credits? 

No

Yes (if an HRA is offered, employees may need to coordinate their PTC with their HRA, or choose between the two).

How group and individual insurance costs compare

In 2019, the average national annual premium costs for health insurance with a group health insurance plan and with individual health insurance were as follows.

  Single coverage
Group health insurance plan, single coverage, 2020 $7,470/year
Individual health insurance plan, single coverage, 2020 $5,472/year

Sources: Kaiser Family Foundation, 2020 Employer Health Benefits Survey, eHealth

It’s important to note that the costs for individual health insurance plans are trending downward in many states, while the cost trends for group health insurance plans continue to increase. Employers also save time and money when employees purchase and manage their own plans.

Learn why individual health insurance is more affordable than group health insurance

Conclusion

When choosing between traditional group health insurance and reimbursing employees for an individual plan through an HRA, there are several factors to consider. While many employees are already familiar with group health insurance plans, their one-size-fits all nature and strict participation requirements can make them a less attractive option. Reimbursing employees for individual health insurance is generally more cost-effective, more flexible, and empowers employees to make their own healthcare decisions. 

Schedule a call with one of our personalized benefits advisors today to learn more about how an HRA can work for your organization

Topics: Individual Health Insurance, Group Health Insurance, Health Insurance

Additional Resources

Ready to cancel group health insurance in place of an HRA? Get our toolkit.
Group health insurance or HRAs? Compare them with our chart.

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