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Small Business Employee Benefits and HR Blog

Employer Funded Individual Health Insurance - The Obvious Solution

In two weeks, we release our book The End of Employer-Provided Health Insurance, which discusses the obvious solution to our nation’s employer health insurance woes - employer-funded individual health insurance. The book is available for pre-order on Amazon.com and BarnesandNoble.com.

Employer Funded Individual Health Insurance

Millions of working Americans believe that the only way they can get health insurance is from an employer. Until recently, their belief was accurate.

However, in the past few years, a quiet revolution has changed the health insurance options available to employees and businesses:

  • Individual health insurance has become cheaper and better than traditional employer-provided health insurance.

  • Most Americans are now eligible for monthly federal tax subsidies (called premium tax credits) for individual health insurance if their employers do not offer employer-provided health insurance.

  • New defined contribution programs allow employers to reimburse employees for individual health insurance costs.

  • These changes mean that your company can get out of its health insurance conundrum while still (1) enabling employees to obtain high-quality health insurance, and (2) providing a defined contribution health benefits program that helps recruit and retain the best employees.

The obvious solution to rising employer-provided health insurance costs is employer-funded individual health insurance. Why? There are three reasons:

  1. Employer-provided health insurance is bad for companies, employees and their families;

  2. Individual health insurance is good for companies, employees and their families;

  3. Employers can continue to offer a health benefits program by giving employees money to purchase their own individual health insurance plans.

Why Employer-Provided Health Insurance is Bad

Most Americans get health insurance from their employers and never think too much about it until they or a family member develops a serious health problem. That’s when they first learn the details of their health insurance benefits, which medical providers they can use, and what their out-of-pocket expenses will be. The term insurance in employer-provided health insurance is misleading since the insurance terminates when you lose your job—often the time when you are most financially vulnerable.

Healthcare costs now consume almost one-sixth of America’s economy, and, during your lifetime, medical and health insurance costs are likely to be your largest or second-largest expense after housing. Health insurance is arguably the single most important consumer financial product Americans purchase today. One wrong step can bankrupt even the most affluent family. Yet, most Americans don’t get to pick their own health plan or doctor network. Rather, they get a one-size-fit-all employer-provided health insurance plan chosen by someone else.  

Here are 10 reasons employer-provided health insurance is bad for you, your family and your company:

  1. It’s temporary—You lose your health insurance if you or your loved one gets sick.

  2. It’s overpriced—You pay $4,000 to $12,000 more than individual health insurance for the same coverage.

  3. It’s risky—Your coverage may be canceled at any time without notice.

  4. It’s limited—You don’t get to pick your doctors and hospitals.

  5. It’s one-size-fits-all—You don’t get to choose your deductible or copays.

  6. It’s unfair—You are disqualified from receiving your $2,000 to $12,000 per year share of the trillion-dollar federal subsidy.

  7. It’s unstable—Your cost could double due to one employee with a million-dollar claim.

  8. It’s bad for your career—People stay in jobs that don’t let them realize their full potential.

  9. It’s bad for your business—Management spends time on health insurance that should be spent on customers and products.

  10. It’s bad for America—Employer-provided health insurance is the top reason U.S. healthcare costs are almost $4 trillion, approaching one-fifth the size of the U.S. economy.

Note: I will be going through each of these 10 reasons in detail over the coming weeks - subscribe to our feed to ensure you receive them.

Why Individual Health Insurance is Good

An individual or family health insurance policy is a policy purchased from an insurance company covering you and selected family members. It works just like car insurance. With individual health insurance, the risk is spread over a large group of people—hundreds of thousands, even millions, depending on the plan and insurance company.

Today, individual coverage is almost always better and costs about half the price of comparable employer-provided coverage. Moreover, most American families earning less than $100,000 a year are eligible for a federal subsidy to pay for individual health insurance—but only if their employer does not offer employer-provided coverage. The amount of the subsidy depends on income and family size and pays monthly, on average, about half the price of individual coverage—making individual coverage after the subsidy about one-fourth the price of comparable employer-provided coverage.

Here are 10 reasons individual health insurance is good for you, your family, and your company:

  1. It’s portable—You keep your health insurance if you or your loved one gets sick.

  2. It’s 20 to 60 percent less expensive—You and your employer pay $4,000 to $12,000 less for the same coverage.

  3. It’s permanent—Your coverage cannot be canceled as long as you pay your premium.

  4. It’s not limited—You get to pick your doctors and hospitals.

  5. It’s customizable—You choose your deductible and copays.

  6. It’s subsidized—You may be eligible for a $2,000 to $12,000 per year share of the trillion-dollar federal subsidy.

  7. It’s stable—You’re in a large group and your after-subsidy cost can only increase with your income.

  8. It’s good for careers—People are free to change jobs based on what’s best for their career vs. what’s best for their healthcare.

  9. It’s good for business—Management spends more time focusing on customers and products.

  10. It’s good for America—It empowers Americans to manage their own healthcare and it makes American businesses more competitive.

The Obvious Solution - Employer-Funded Individual Health Insurance

Individual health insurance is now better than employer-provided health insurance for you, your family, and your company because:

  1. Individual health insurance is less expensive.

  2. Individual health insurance enables choice.

  3. Individual health insurance stays with you when you switch jobs.

This begs the question: Can you choose your own individual health insurance and get your employer to cover the cost?

The answer is an emphatic, “Yes!”

Your company may cancel its employer-provided health plan and give all or part of the savings to employees to reimburse them for all or a portion of their individual health insurance premiums. This concept is commonly referred to as defined contribution health benefits.

Do you think employer funded individual health insurance is the obvious solution? What questions do you have? Leave a comment.

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