With so many health insurance options to choose from, how do you know what's best for your business? Group plans have traditionally been a popular choice for employer-sponsored health insurance coverage. However, more employers are embracing reimbursement models, like health reimbursement arrangements (HRAs), to provide quality essential health benefits to their employees.
Plans like HRAs allow you to reimburse your employees tax-free for their own individual health insurance. This is a win-win scenario for your organization and employees for many reasons. However, you may be wondering what advantages you and your employees gain when you allow them to purchase their own individual medical plans.
In this article, we'll cover the top five advantages of individual health insurance that apply to employers and employees.
Takeaways from this blog post:
- Health benefits can increase employee morale, reduce absenteeism, and protect employees from financial losses due to rising healthcare costs.
- Individual health insurance plans cover a wide range of medical expenses, including ambulatory services, emergency care, mental health services, and preventive care.
- Individual health insurance offers cost savings, discounts, and greater flexibility than traditional group plans. Individual health plans are also more personalized and portable compared to employer-sponsored plans.
Before we get to our list of advantages of individual health coverage, let's cover why your organization should provide health benefits.
Providing employee benefits, such as medical care coverage, helps you attract and retain employees. If you're struggling to retain workers, offering a health benefit is a great place to start.
Our 2022 Employee Benefits Survey Report found that 87% of employees value health benefits such as health insurance. Additionally, 82% of employees said the benefits package an employer offers is an important factor in whether or not they accept a job with an organization.
Health benefits can also increase employee morale and reduce absenteeism, as your employees will be healthier.
Health benefits protect your employees from financial losses due to rising healthcare costs. Whether an employee is covered under a group plan or an individual policy, being enrolled in a health plan will help them cover a variety of medical expenses.
If a person enrolls in an individual plan through the Affordable Care Act (ACA)’s marketplace, their plan is legally required to cover the following services:
The federal government doesn’t require individual health insurance programs to provide adult vision coverage or adult dental coverage, but it does require carriers to include coverage for children's dental and vision costs in their plans. Employees can purchase separate adult dental and vision plans from the marketplace.
All marketplace plans must provide additional benefits such as birth control and breastfeeding coverage.
There are many advantages to covering the cost of employees’ individual health insurance plans over providing traditional group health insurance. We'll cover the top five advantages in the following sections.
Looking at the cost of group health plans over the years, you'll see that they've steadily risen. As group health insurance premiums get more expensive, it becomes more difficult for small- and medium-sized organizations to afford this type of health benefit for their employees.
Group plans work by spreading the insurer’s risk across the entire group. Therefore, the larger the group, the less risk and, therefore, fewer costs per employee. It can be tough for small and midsize organizations to meet the minimum participation requirements for group plans. Even if you do, the costs are often higher than individual health insurance plans or larger group plans.
Not to mention the annual rate hikes that inevitably come once it's time to renew your employer-sponsored plan. According to KFF1, the average employer-sponsored health insurance premium increased by 7% between 2022 and 2023.
On the other hand, individual policies are generally more affordable.
What's more, by offering an HRA, you can give your employees a set monthly allowance to spend on their health insurance premiums and other qualifying out-of-pocket costs, making it easy and consistent to budget for every month.
Not only are individual health insurance premiums more affordable to begin with, but employees can also qualify for additional financial assistance on their premiums.
These discounts on health insurance, known as health insurance subsidies or premium tax credits, help low-income Americans get affordable health coverage through the health insurance marketplaces.
If you offer a group health insurance policy that your employees can't afford, there are no subsidies available to help them cover the monthly cost. That means their only option is to opt out of the employer-sponsored coverage, leaving them uninsured and less likely to stay working at your organization.
It's important to note that if you offer an HRA, your employee may need to coordinate their premium tax credit with their HRA allowance or choose between the two, depending on the type of HRA you're offering and if your employee’s allowance is unaffordable.
If you have 50 or more full-time equivalent employees (FTEs), you must offer an affordable health benefit that meets minimum essential coverage (MEC) and minimum value standards to at least 95% of your full-time employees to satisfy the ACA’s employer mandate. If you have fewer than 50 FTEs, you don’t have to meet the affordability standards.
You can also offer a health stipend to your employees if you have workers who receive advance premium tax credits. However, employee stipends are taxable for employers and employees, making HRAs a better coverage option for most organizations.
While most employees are thankful for the group health insurance plan their employer offers, they don't get any say in what kind of plan they ultimately end up with. They're often lumped into a one-size-fits-all plan without any choice on their network, coinsurance, or monthly premium cost.
By reimbursing your employees for their individual health insurance instead, they can choose a personalized plan that works with their preferred doctors, healthcare providers, and budget. If your employees need chronic condition management or special medical equipment, they can choose the type of plan that best fits their needs.
Traditional group plans are full of strict requirements that can be hard for small and medium-sized business owners to meet.
For example, many health insurance companies require that a minimum number of employees enroll in the plan. If you have employees who are on a spouse's or parent's plan, enrolled in Medicare, or simply don't want the coverage, you may not meet the participation requirements, which means you can't offer the plan to those who do want it.
Moreover, group health insurance plans also have minimum contribution requirements, typically mandating that employers cover at least 50% of employees' premiums. If you can't afford to cover that much, you won't be able to offer the plan.
Reimbursing your employees for their individual health insurance policies keeps you from following these strict group requirements. This gives you the flexibility to contribute what you can afford and allows you to offer the benefit to any number of employees, depending on the plan you choose to set up.
Unlike group health insurance, individual health insurance policies are entirely portable, meaning your employees can take their policy with them even after they leave your organization. With a group plan, your employees would lose coverage after leaving your organization (though COBRA can extend coverage for a limited time).
Reimbursing your employees for their individual health insurance with an HRA allows you to offer a formal health benefit that takes care of your employees. It also empowers them to make their own informed decisions about their healthcare that aren't dependent on their employment.
There are many advantages to offering reimbursement for employees' individual health insurance plans instead of a group plan.
Offering a tax-free HRA to employees for their individual health insurance is an excellent way to contribute to your employees' healthcare while empowering them to choose an individual plan that works for them.
If you want to offer personalized health benefits to your employees, PeopleKeep can help. Our HRA administration software makes it easy to set up and manage your benefits in minutes each month.
This blog article was originally published on October 2, 2013. It was last updated on April 9, 2024.
1. https://www.kff.org/report-section/ehbs-2023-summary-of-findings/