In the US, group health insurance is provided by the employer as a fringe benefit. The employer can be a large company or a small business firm. Small employer health insurance plans are meant to cover 2 to 50 employees. As against an individual health insurance plan, which requires a person to bear the entire amount of premium, a group insurance plan results in the employer paying a portion of the premium or the entire premium for the policy, which are thus advantageous to employees. They can be traditional or managed care. Managed care plans are either Health Maintenance Organization Plans (HMOs), Preferred Provider Organization Plans (PPOs) or Point of Service Plans (POS).
Benefits for Employees
Lower Premium: Group health insurance plans carry lower premiums as compared to individual plans. The premium for insurance depends on the risk profile. Greater the amount of risk, higher is the premium on the policy. Since the risk here is distributed among a group of people, the per-head risk becomes less, which makes the premium per person less. It would behoove an employee to opt for the insurance plan provided by his employer instead of considering an individual one.
Additional Coverage at a Cheaper Cost: A person can get a number of additional benefits like optical care, mental, and dental care at a cheaper cost, because of increased purchasing power on account of buying insurance as a group. Most insurance policies do not cover the cost of pregnancy. On requesting this coverage, the premium in case of an individual health insurance policy may become very expensive. A group one enables a person to obtain this benefit at a lower premium.
Pre-Existing Conditions: Health Insurance Portability and Accountability Act of 1996 (HIPAA ) limits the ability of the insurance companies to refuse coverage to an employee seeking insurance under the employer’s group health insurance plans. In case of large companies, health insurance can be denied on account of past claims of the employees. However, no individual employee can be rejected on the basis of his claims history. In case of small companies, coverage under the health insurance plan cannot be refused on account of pre-existing conditions. Moreover, the insurance company is not allowed to delve into more than 6 – 12 months of claims history. In case of individual policies, the insurance company may deny coverage on account of pre-existing conditions. Moreover, the pre-existing exclusion period for individual insurance can be anywhere between 12 and 24 months, depending on state laws. Hence, a person who does not qualify for individual health coverage on account of pre-existing conditions can still be covered by a group insurance policy.
Tax Benefits: The fringe benefit in the form of premiums paid by the employer is not considered a part of the employee’s taxable compensation. In case of individual health insurance, a person has to pay the premium from his after-tax salary.
Benefits for Employers
Tax Incentives: The premium paid by the employer for group health insurance is fully deductible, provided health insurance is offered as a part of the employee’s compensation.
It is evident that group health insurance is a good alternative to individual health insurance, provided a person is employed. According to the Consolidated Omnibus Budget Reconciliation Act (COBRA), in case a person loses his job, he can still be covered for 18 months after the layoff under the former employer’s plan. Moreover, from March 1, 2009, a former employee has to pay only 35% of the premium of the policy, while the remaining 65% would be covered by the Federal government. Prior to March 1, 2009, an employee had to pay the entire amount of premium after layoff, thus making the plan prohibitively expensive.