The health insurance marketplace is certainly challenging, but count your lucky stars that at least you have choices.  To that end, this article is going to explore the pros and cons of group health insurance.  I also invite you to keep checking back, because we are also going to be doing the same thing for individual health insurance.  After, reading both articles, we hope to help you answer the question “which is better, individual or group health insurance?”. As you will learn, the answer to this question is tricky and no one answer will satisfy every person’s (or every family’s) unique circumstances.  Let’s begin by exploring the pros and cons of group health insurance:

Group Health Insurance Pros

• Group health premiums are subsidized by the employer. In Colorado, generally, an employer must contribute at least 50% of the “employee only” premium.  As such, if you are the employee, you can likely get a richer health plan for less premium than you would pay in the individual health insurance marketplace.  However, the cost to add your dependents to the employer’s plan, may be cost prohibitive.  In this case, and assuming that your dependents can qualify for individual health insurance, then you may want to put them on an individual/private health insurance plan.

• Group health premiums for large families are the same as for small families; whereas in the individual market, you pay a separate premium for every family member.  So, if you have a large family, you may be able to get a better deal by adding them to your employer’s plan.  As with any health insurance change though, don’t make any changes without consulting with an experienced health insurance advisor in your state (we specialize in Colorado health insurance).

• Group health insurance in most states (Colorado included) is guaranteed issue — meaning that you can’t be turned down because of pre-existing health conditions.  This is a real blessing if you or a family member has a medical condition that prevents you from qualifying for a individual health insurance plan.  But, this is a double-edged sword.  While being guaranteed issue is a huge benefit for those with pre-existing medical conditions, it does come at a price.  This one feature alone accounts for most of the disparity between group and individual health insurance premiums.  Yes, that is right — in Colorado,  individual health insurance premiums are almost always less expensive than group health premiums.

• Most group health insurance plans cover maternity. So, if you are planning on having more children, you should definitely consider hopping on to a group health insurance plan.  While you can add a “maternity rider” to individual health insurance plans, these riders tend to be expensive, restrictive, and otherwise provide less value than the coverage you can get in a group health plan.  That being said, if you are considering having more children, we recommend that you contact a health insurance advisor in your state for advice about what is best for your family.  The right answer is different for each unique family.

• Economies of scale can benefit employees of large employers. It is true that the larger the group, the larger the risk pool is in which to share the risk which CAN result in lower premiums than are available in the individual health insurance market.  However, the guaranteed issue “issue” CAN wreak havoc on this type of plan.  For example, a large employer with good benefits tends to retain employees for long periods of time.  Eventually, the average age of the group starts to creep up and so do premiums.  In addition, people with large medical needs (expensive medical conditions) tend to be attracted to large plans because they are guaranteed issue with good coverage.  And so, over time, not only is the group’s average age increasing, but the group is also attracting employees with large expected health costs.  This is the dilemma that we see with large health plans like the U.S. auto-makers and even government health insurance plans.  Eventually, those with lots of medical needs begin to outnumber those with little or no needs and so premiums are driven higher and higher.

Group Health Insurance Cons

• Group health insurance can be more expensive than individual health insurance. You can see this for yourself, by checking out individual health insurance quotes for you and/or your family.

• What happens if your employment is terminated (by you or your employer)? Yes, you will likely have some benefit continuation rights (through COBRA or state continuation programs), but these benefits can be very expensive and the term limited.  So, eventually, you either have to secure another job with benefits, an individual health insurance plan (assuming you are insurable), or possibly join a government health insurance program for the uninsured (if you are not insurable).  Let me emphasize, that you should NEVER be without some form of major medical health insurance.  Being without health insurance puts you and your family in serious financial jeopardy.  In fact, a recent Harvard University study found that 50 percent of all bankruptcy filings were partly the result of medical expenses.¹  To the same point,  every 30 seconds in the United States,  someone files for bankruptcy in the aftermath of a serious health problem.  Don’t let this happen to you.

• Group health insurance premiums are rising faster than individual health insurance premiums. Why? Because most group health insurance plans are guaranteed issue and since they accept “all comers”, they tend to attract those with high medical costs.  On the other hand, most individual health insurance plans are medically underwritten.  This means that the insurance company can say “no thanks” to any application that it deems to not be in its interest.  Put yourself in their shoes — would sign a contract to provide $30,000 in annual benefits to someone that was only going to pay $3,000 in premiums (for a net loss of $27,000)  if you didn’t have to?  Hmm…let me me think about that one.  The answer is a resounding “NO!”.  Because of this underwriting process for individual health insurance, insurance companies can control their risk and more effectively manage their profitability, resulting in more stable prices.

Now that you have a better understanding of the pros and cons of group health insurance; next, let’s explore the pros and cons of individual health insurance (coming soon). Until then, please don’t hesitate to call us at 970-484-1250 for a free health insurance consultation.  Our health insurance advisors are well versed on both group and individual health insurance options, and they will take the time to understand your unique circumstances in order to recommend the most appropriate and best value solution for you and/or your family.

In addition, if you are an employer that would like to learn more about Sage Benefit Advisors’ services including group health insurance and other employee benefits, please give us a call or otherwise contact us.  We would be happy to provide a free benefit plan review to ensure that you are getting the best value for your premium dollars and to ensure that your benefit plan is optimized for recruiting and retaining the best employees possible.

¹Himmelstein, D, E. Warren, D. Thorne, and S. Woolhander, “Illness and Injury as Contributors to Bankruptcy, “ Health Affairs Web Exclusive W5-63, 02 February , 2005.