Savvy small business owners have their ears to the ground about employee benefit trends and opportunities, and now is the time of year when predictions about 2015 are circulating. While no one has a crystal ball, many signs say the next big thing in health benefits is individual health insurance reimbursement. Here's why.
Group Health Insurance No Longer Works for Small Businesses
Trends or changes are often fueled by something not working; something that’s broken. In this case, group health insurance is broken. It no longer works for small businesses or employees. We often talk on this blog about how the costs of group health insurance are unsustainable - that’s because since 1999 the cost to cover a single employee has increased 174% and the cost to cover a family has increased 191%.
Additionally, group health insurance no longer works because it is temporary (you lose coverage if you leave your job), it’s one-size-fits-all, and it’s unstable. Read more about why group health insurance is no longer the best solution here.
As a small business owner or HR administrator, you are probably well aware of the headaches (financially and otherwise) with managing a group health insurance policy.
As such, experts predict a massive shift from group health insurance to individual health insurance in the coming years.
For example, Dr. Ezekiel J. Emanuel, in his recently published book, “Reinventing American Health Care,” predicts that by 2025, fewer than 20% of workers in the private sector will receive traditional employer-sponsored health insurance.
S&P Capital IQ, a division of McGraw Hill Financial, came to a similar conclusion. They predict that by 2020, 90% of American employees who currently receive health insurance through their employers could be shifted to individual health insurance and government Exchanges.
Why The Adoption of Individual Health Insurance is a Good Thing
As companies drop group health insurance, they are not dropping health benefits altogether. They are adopting new solutions. One prevailing solution is individual health insurance reimbursement.
Now, when small business owners think about individual health insurance, they often have some questions. Is it as good as group health insurance? I have sick employees (or family members)... how will they afford coverage? Don’t I have to offer group health insurance under health reform?
Is individual health insurance as good as group health insurance?
Yes. And in many cases, individual health insurance is better because it is less expensive (yes, you read that right), enables choice, and stays with employees when they switch jobs.
And, most employees are now eligible for monthly federal tax subsidies (called “premium tax credits”) for individual health insurance -- but only if your business does not offer group health insurance.
I have sick employees (or family members)... how will they afford coverage?
Under health reform, individual health insurance can no longer deny coverage, or charge more for coverage, because of a pre-existing condition. Simply stated, medical conditions do not impact what you pay for coverage.
Don’t I have to offer group health insurance under health reform?
No! Small businesses (with fewer than 50 employees) are not mandated by health reform to offer group health insurance, and will not pay a fee for not offering traditional coverage.
The Next Big Thing in Health Benefits
Group health insurance is broken, and individual health insurance is now better. So where does that leave employee benefits? The answer - individual health insurance reimbursement.
With individual health insurance reimbursement, your small business may cancel its group health plan (if you’ve offered one to start with) and give all or part of the savings to employees to reimburse them for their individual health insurance premiums.
There are a couple ways to go about reimbursing employees for individual health insurance (see this guide), and there are pre-tax and post-tax options available.
Bottom line? These changes mean that your small business can get out of group health insurance while still enabling your employees to obtain high-quality health insurance, and providing a health benefits program that helps recruit and retain the best employees.
How Popular Will Individual Health Insurance Reimbursement Get?
All signs say this approach is the future of small business health benefits, not just a passing fad. In a recent Whitepaper we predict that 60% of small businesses will eliminate traditional group health insurance in favor of individual health insurance reimbursement by 2017 - just over two years away.
What do you think? Is individual health insurance reimbursement the next big thing? Leave a comment below.
