Employer Based Health Insurance vs. Individual Health Plans
There are basically 2 types of health insurance policies that small business owners can consider for their employees and themselves and employees, namely, family or individual health insurance policies and employer health insurance policies. The employer health policies are also known as small business health insurance or group health insurance. Given below is a detailed description of how and what all is covered under the two options along with a brief comparison between the two.
Employer Based Health Cover
Presently, there are the following benefits of having an employer-based health cover instead of an individual health insurance plan:
- Employer health coverage is a guaranteed cover, meaning, that a person covered under a health insurance policy is insured against any and every health problem I the world. However, most of the individual health plans are also guaranteed issue nowadays.
- Employer health insurance covers are governed under the federal law and thus, provide enhanced benefits, such as mental health care and pregnancy health care. On the other hand, individual health insurance plans are administrated under the state government, and as we all know, every state has varied requirements as per the insurers. For instance, some states might not require a cover for pregnancy health care under individual health plans.
- Employers consider the cost of health insurance for their employees as a business expense, meaning the benefits from the same shall not be taxed. Employees are also given a benefit by allowing them to pay their share of the health insurance premium on pre-tax basis when the policy is being purchased by the employer. Meaning, they get the advantage of saving money from going towards taxes by the means of purchasing employer health insurance plan. For the people employed under others and earning W2 income, the premiums paid towards individual health policies can’t be deducted taxes unless it is itemized. Even after itemizing, only if the premium exceeds 10% of policyholder’s gross salary, then he can claim for a deduction. This being tough criteria to meet, most of the people pay for the health insurance on after tax basis, meaning, they pay higher health insurance premiums.
- Employers compensate a part of health insurance premiums for their employees. In the recent times, the employers have started disclosing it to the employees that what amount of their health insurance premium is being paid by the employer.
Individual Health Cover
There is basically just one benefit of buying individual health coverage nowadays. The benefit is that a health and young individual can buy individual health coverage at a rather cost. Most of the employees have a perception that individual coverage can be bought for very less money as compared to the amount of premiums they have to pay towards employer group health insurance. No one tries to figure out why is it that cheap. It is because the individual coverage isn’t a guaranteed issue. Additionally, it has a few eligibility criteria. Therefore, insurance companies offer lower amount of premiums under individual plans because it has the advantage to cherry pick health people to insure. So an individual pays extra under employer based coverage in exchange for the extra benefits.
Therefore, the best choice is to go for employer provided group health insurance. Here is why:
- In case an individual’s income is below the poverty level of 400% (which constitutes a major part of the population), the he shall be qualified to get tax credits against the premiums. However, without employer based health coverage one shall not be considered eligible to receive premium tax credits.
- As the costs of premium for an individual health policy and a group health insurance policy are deemed to be considerably comparable, almost certainly, the employer based health insurance coverage shall come less costly to the employees. This is because the employer is required to pay a minimum of 50 per cent of the cost of premium. Please keep in mind, “less expensive” might not be same as “affordable” in an individual’s mind. Most of the people consider paying any amount more than the cost of a Starbuck’s coffee towards a health insurance policy as unaffordable.
- The amount of premium paid towards a health insurance policy through a company is paid on pre-tax basis. Meaning, it reduces the tax burden of the employees. Contrarily, premiums paid towards individual health insurance are on after-tax basis and thus, comparatively more expensive. Until and unless an individual works for some company plus has a side job, the health insurance premiums would come costlier to him in case he pays directly.
However, anything advised in the article is subject to changes and an individual’s personal requirements and preferences. But, whether buying individual health policy or a group health policy, the best way is to compare online and then buy. Whether you are in any part of the world, it is a must to take an informed decision after comparing various online health insurance plans on aggregator websites such as ehealthinsurance.com in USA, policybazaar.com in India, onlineinsurancesolutions.co.uk in UK, etc.