You’re one freewheeling, independent spirit. Maybe you were a flower child, or maybe you still carry a copy of The Fountainhead. Suffice it to say, you like doing things your own way. So when it’s time to decide between a group (company-sponsored) and individual health plan for your employees, your first instinct may be to pursue the individual path. Individual, in control. But is that really the best option? In this article, we’ll explain both types so you can pick the best benefits option for your team.
To kick things off, let’s first define the terms:
Group insurance: This is insurance that is extended by your company to your employees. People are covered under the plan for the whole time they work at your company. As an employer, you can either pay for the entire cost of your team’s monthly premiums, or you can cover part of the cost and allow folks to contribute the remainder.
Individual insurance: This is insurance that people go out and buy directly from an insurance company or exchange like HealthCare.gov. You don’t need to be employed to get an individual plan, and you can purchase it without your employer’s involvement.
How are group and individual plans different?
Well, in nearly every aspect. Let us count the ways.
1. Culture
- Group: When someone starts a new job, knowing that they’ll receive health insurance from feels good from head to toe. Your new hire won’t have to make as many tough choices, since you will have researched and prepared customized options for them already. Instead, your employee can concentrate on getting acclimated to the new role at hand. Loyalty and productivity, on high.
- Individual: At work, individual plans throw a curveball. In the first few weeks, new employees are faced with the enormous decision of deciding what kind of coverage they should get. Where do they go? What’s the best package for their situation? And who will help them with all of this? Since your team’s broker won’t be recommending individual plans, it’s one more laundry list of to-dos they’ll have to handle when they start. It also means that each person has to learn about coverage all by themselves, including the insurance or exchange websites, managing payments on a monthly basis, and other important tasks.
2. Compliance
- Group: The patchwork of laws inside the Affordable Care Act (ACA), ERISA, and other regulations, including the most recent IRS clarifications regarding health insurance, have made it clear that employer-sponsored plans are the way to go. In fact, companies with more than 50 full-time equivalents (FTEs) will be heavily fined if they don’t provide coverage.
- Individual: Reimbursing your team for their individual insurance premiums sounds easy enough, but in the eyes of the IRS, it’s illegal. This is because that reimbursement is viewed as a group health plan, and therefore needs to follow the guidelines set out in the ACA. You could be fined an average of $100 a day (up to $36,500 a year) for every employee you pay back.
3. Price
- Group: Employees get the most bang for their buck with group coverage because companies usually end up paying a significant percentage of the premium cost. Not only that, employees are also able to take pre-tax money from their paychecks to cover the remaining share of their premiums. While it’s not always the case, often times employer-sponsored coverage comes with a richer array of benefits, like a provider network, prescription coverage, and other plan features.
- Individual: For individual health plans, a person’s income can be a factor in the total cost. There are premium tax credits available on HealthCare.gov for those who make between 100 to 400 percent of the federal poverty line and don’t have access to group health benefits through an employer.
It’s important to remember that the costs of every plan — both group and individual — vary wildly depending on the depth of benefits being offered. And not participating comes at a price too. If an individual doesn’t take part in employer-sponsored insurance or enroll in individual health coverage, the government will charge an annual penalty fee.
4. Process
- Group: Every pay period, you cover a percentage of your employees’ premiums and the remainder is subtracted from their paychecks — they won’t have to do a thing. Employee contributions are also paid before taxes are taken out, whereas individual insurance is paid with post-tax dollars.
- Individual: Your employee is in charge of paying their premium every month on the dot, adding and removing dependents, and working with the carrier to resolve issues and make changes to their plan. For some people, this can add extra pressure because there’s now one more bill and set of administrative issues they have to deal with outside of work.
5. Tax credits
- Group: If you have 24 employees or less on your team, you may qualify for the small business health care tax credit. There are three items you need to tick off to be eligible: 1) you must purchase your plan through the SHOP program within HealthCare.gov or your state exchange (where applicable), 2) your team must have an average salary of $50k or less, and 3) you must pay at least half of everyone’s premiums.
- Individual: Whenever someone buys an individual plan through the Marketplace, they may be able to get a premium tax subsidy if they meet certain annual income requirements. To see if you qualify, take this quick quiz from the IRS.
Now that you know the main differences between the two plan types, you’ll be in a better position to find one that promotes what matters to you. But whatever plan you end up with, keep one thing in mind: It’s pretty extraordinary to wake up every day and be able to provide coverage for the amazing group of individuals you call your team.
