As a result, some business owners are replacing group policies with a defined contribution plan that helps employees buy the health insurance that best suits their personal and family needs. In many cases, the business lowers its costs, and employees get better coverage at a lower cost as well.
In fact, some experts predict that over the next three years, more than half of small employers will stop offering health insurance in favor of employees buying individual health plans on their own with an employer stipend to help pay for it.
According to Paul Zane Pilzer and Rich Lindquist, authors of a new book called “The End of Employer-Provided Health Insurance” (Wiley, 2014), employees tend to prefer it this way. If your business is thinking of going this route, here are seven talking points on what can make it attractive:
1. It’s customizable. Group plans sometimes force employees into a rigid, “one-size-fits-all” box. With individual health insurance, they don’t have to settle for that. Each employee can choose a plan with features—premiums, deductibles, provider networks, etc.—that make the most sense for the employee and his or her family. This can give them greater control over picking doctors and hospitals.
2. It’s more affordable. On average, policies sold in the Health Insurance Marketplace are 20 to 60 percent less expensive than group plans. This is great news for employees who have had to pay a high percentage of their monthly premium. In addition, many families earning less than $100,000 a year can qualify for a monthly federal subsidy.
Consider these figures from the Kaiser 2013 Annual Employer Health Benefits Survey: The average cost of individual health insurance for an employee was $3,080 a year, and for a family it was $6,674 a year. By comparison, the cost for traditional employee health insurance was far higher: $5,884 for an employee and a whopping $16,351 for a family.
3. It’s stable. In a small company with a group plan, if one employee gets diabetes or cancer, insurance costs might well go up. The choice is usually this: Stick employees with huge premiums, cancel the insurance, or go out of business. This is not so with individual plans. Because employees are in much larger groups, prices rise far more slowly—and if the plan is subsidized, the cost can go up only if household income does, too.
4. It’s portable. With employer group plans, having health insurance is linked to keeping a job. If an employee wants to change jobs — or has to change jobs — his or her health insurance changes too. And if the employee (or a covered family member) happened to get really sick, there may be a preexisting condition to worry about. That’s no longer the case. Now when an employee leaves, their health insurance goes with them.
5. It’s more permanent. Employers can cancel their group insurance any time they like (and when they do, no COBRA is available). With individual health insurance, the employee controls the policy. As long as they pay the premium, coverage cannot be canceled for any reason.
6. It’s good for the company. In the past, crippling health insurance costs have sometimes kept small employers from hiring new talent. Now, that burden is partially lifted. That frees business owners to focus more on improving products and services rather than managing health insurance. All of this leads to healthier small companies, which leads to happier employees who can stay employed.
7. It’s more mistake-proof. Shopping for individual policies is remarkably easy. Federal regulations require all health insurance plans on the exchanges to meet a minimum level of coverage. Employees can also work directly with an insurance agent if they don’t want to go to the exchanges themselves.
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