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The Benefits of Small Business Health Plans over Individual Plans

 

 

Small businesses often ask me how a small group health insurance policy is better than an individual plan.  In this article, I want to highlight the 4 biggest benefits to employees from buying insurance through a group plan instead of an individual plan.

 

1. Better Network

 

A side effect of the Affordable Care Act (Obamacare) is that individual health insurance plans all run on narrow HMO networks.  This is the only way they can keep their premiums low enough to meet the requirements of the ACA.

 

Group benefits don’t have to meet any of these premium rules.  So they offer plans in the HMO networks and in the traditional PPO networks.  The PPO plans allow your employees to get treatment from a majority of providers and gives them access to all the national Centers of Excellence (Cleveland Clinic, Mayo Clinic, etc).

 

2. Richer Benefits

 

Most benefit plans for individuals will have high out-of-pocket costs.  This is particularly true of the plan’s Maximum Out of Pocket.  Typically the max out of pocket will be the highest amount allowed by law.

 

Group plans can commonly be found with out of pocket maximums as low as $4,000.  The premiums will be higher than those with higher out of pocket maximums but you and your employees will have less financial risk should you have a serious illness.

 

3. Lower Premiums (Sometimes)

 

The group market has numerous special programs.  If you qualify, these programs can allow you and your employees to move to a healthier pool and thus lower your insurance premiums.

 

An example would be an association plan.  With their lower admin costs and healthier populations, these programs will be lower priced for healthy groups than the standard pool.

 

4. Lower After-Tax Cost of Premiums for Employees

 

Section 125 of the tax code states that group health insurance plans offered through a Section 125 Plan can be paid by employees on a pre-tax basis.

 

Let’s assume an employee’s premiums are $10,000 a year in premiums through an individual or group plan.  That employee takes home 70% of her pay.  If they purchase the same plan through work and their employer has a 125 Premium Only Plan established, that employee will in effect only spent $7,000 on their insurance premiums.  That’s a 30% discount.  Employees and business owners in higher tax brackets will save more.

 

Final Thoughts

 

With their better networks, richer benefits, lower premiums and lower after-tax cost to employees, small business health insurance plans are a great option instead of an individual health plan.

 

Employers with 2 or more full-time employees can offer a group health plan to their employees and help them take advantage of these benefits.

 

If you are a small business with 2 or more employees who is curious how much a small business health plan costs and how they work, please give me a call.  Over the years I’ve helped many small businesses start their own plan over the years.

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