Individual health insurance policies are the fastest growing form of U.S. health insurance, especially among small to medium-sized businesses. Prior to the Affordable Care Act (ACA), less than 10 percent of Americans had coverage under an individual health insurance policy. Most people purchased insurance through their employer. With the rise of defined contribution health benefits and the ACA, the individual health insurance market is becoming a more affordable option for small businesses.
For most employees, individual health insurance costs less than group health insurance. Additionally, as of 2014, individual health policies have new advantages for small businesses. This article contains an overview of how small businesses can use individual health insurance as the foundation for affordable employee health benefits.
How Much Does Small Business Health Insurance Cost?
Small businesses are facing double-digit premium increases at renewal time this year. Since with group insurance, the premium cost is typically split between the employer and employee, both parties are exposed to higher health-care costs. The premiums typically increase every year based on the health-care costs of the employee group from the previous year. With group health insurance, the risk is spread over the company—the number of employees covered, which is not fair to younger or healthier employees who would otherwise have a significantly lower premium.
Small business health insurance costs have nearly doubled since 2009, with 91 percent of small businesses reporting increases in their health policy at their most recent health insurance renewal. In February, a report from The Centers for Medicare & Medicaid Services (CMS) found that approximately 11 million small business employees, over 65 percent, will see health insurance premium rate increases due to the ACA.
A common misconception about individual health insurance is that it is more expensive than group health insurance coverage through an employer. In fact, individual health insurance costs up to 60 percent less than group health insurance.
In the federally run Marketplace, 87 percent of those who selected a health policy are receiving premium tax credits and are paying an average of $82/month. This is according to a new report released by the Department of Health and Human Services (HHS). While the average premium costs $346/month, the premium tax credits bring the cost down significantly. For Silver plans, the most popular type of plan, 94 percent are receiving tax credits and are paying an average of $69/month.
The chart below contains a comparison of the average group health insurance premiums in America to the average individual health insurance premiums.
How Can Small Businesses Help Employees with Individual Health Insurance Premium Costs?
With group health insurance rates on the rise and many small businesses facing significant premium increases, employers are facing enormous cost challenges and are seeking cost-effective alternatives to group health insurance.
Since small businesses (under 50 full-time equivalent employees) are not subject to the employer shared responsibility payment under the ACA, they can mitigate their health benefit costs by not renewing their group health insurance policies and transitioning employees to individual health insurance paired with a Health Reimbursement Arrangement (HRA).
By switching to a health reimbursement program, small businesses can provide their employees with a valued health benefit, while offering all of the advantages and flexibility that individual health insurance policies offer.
Do you have any questions about health reimbursement plans?
