Money Management, Small Business, Career

While the title of this article may sound fairly straightforward there is actually quite a bit of misconception floating around when it comes to comparing individual health insurance vs. group health insurance. Let’s take a look at some of the differences between the two major types of health insurance coverage in the United States and see if maybe you can pick up a few things that will help you understand what the best way to find affordable health insurance coverage really is for your specific situation.

Defining the Two Types of Coverage

I will certainly not take it for granted that everyone reading this article already understands what the terms “individual health insurance” and “group health insurance” mean. Here are the official yet unofficial definitions of the two direct from me:

Individual Health Insurance – This type of coverage is purchased on the private market by a single person for themselves or their families. This coverage can cover more than one person (i.e. the entire immediate family) and is not “just for one person” as some people commonly mistake the “individual” in “individual health insurance” to mean.

Group Health Insurance – This type of coverage is designed specifically for companies to buy for their employees. These plans can be purchased on the open market just like individual coverage (by the employer and not the employee) or they can be a self insured plan set up by the company (typically seen with larger companies) or a combination of the two (i.e. self insured up to a certain limit and then 3rd party catastrophic coverage kicks in for any very large bills incurred by employees).

Now that you understand the basic definitions of group health and individual health then lets take a look at some of the important differences between the two.

Important Differences Between the Two

Once you read through this list of some of the key differences between group and individual health insurance coverage then you will likely be light years ahead of the average health insurance shopper. As the owner of an independent health insurance agency in Florida I can’t tell you how many times our agents have seen the “light bulb go on” while explaining/teaching clients some of these important distinctions:

1. Cost – Individual health insurance is MUCH cheaper than group health insurance is almost every state in the US. When I say MUCH cheaper I really mean that because typically the cost of an individual health insurance plan will run about half of the cost of a similar group health insurance plan (this is even when you compare plans from the exact same company for almost exactly the same amount of coverage). See difference #2 “Underwriting” below to understand why individual health is so much cheaper than group health.
2. Underwriting – With a group health plan every single person that applies for coverage is accepted onto the plan (assuming you are an eligible employee of the group) – no one is denied coverage because of pre-existing conditions (previous/current health issues). Most group plans will not always cover your pre existing conditions right away as there is typically a waiting period before they are covered IF you have not maintained continuous health insurance coverage. But as long as you have done the responsible thing and never had a lapse in coverage then you will automatically be approved for coverage as soon as you apply for a group health plan and you will have all of your pre existing conditions covered right away. Contrast all of this to the underwriting for an individual health insurance plan and unless one qualifies for a guaranteed issue health plan because of the Federal HIPAA laws, then companies offering individual health insurance get to pick and choose who they will approve for coverage (this is true in most states – guaranteed issue states like New Jersey are extremely expensive because if the insurance company is required to approve everyone for coverage no matter what health issues they have, then who wouldn’t want to just go without insurance until they develop a major illness?).
3. Maternity – Maternity coverage is included automatically in almost every group plan, while maternity coverage is by default not included with an individual plan (although most insurance companies offer maternity coverage to be added onto their individual health insurance plans as an extra benefit that you can obtain by paying higher premiums).

If you have a firm grasp on the 3 key differences above then you have a great foundation for starting to make some smart decisions when finding health insurance (decisions that will most likely save you a nice sum of money). Here are some strategies that you can use to put your new found health insurance knowledge into action.

Find Cheap AND Comprehensive Coverage

Before we jump into some strategies I just have to interject that now is an appropriate time to very quickly mention that just because I said the word “cheap” in the same sentence as “health insurance” that does NOT mean that I am advocating going out and buying one of those $29.99/month discount health cards that you see advertised on TV at 3 in the morning.

If you want real coverage when you develop a major illness then you need to purchase real health insurance and not just a discount card. Even if you can get a great discount of say, 50% off of all medical procedures (highly unlikely), you can still stress your finances if you develop cancer or some other very expensive illness. Whether you have to pay the full cost of $300,000 or the discounted price of $150,000, you have just needlessly put your family and your financial future at risk (keep in mind that many large medical bills are recurring monthly charges for ongoing chemo treatments, medications, etc. and you can very quickly fall behind even if you think that you have the funds to self insure).

If you are unsure of where to start then work with a trusted independent health insurance agent (”independent” meaning that they are not tied to just one insurance company but can work with many companies and help you find the best plan from any number of different companies). Stick with the large and well known insurance companies and not fly by night infomercial companies because chances are if you have never heard of the insurance company before, then maybe your Doctor hasn’t either. Do your homework online and read reviews of United Healthcare, reviews of Blue Cross Blue Shield, reviews of Aetna, and other health insurance providers so that you can work with your independent insurance agent to find not only a cheap plan, but a cheap plan from a trusted company that offers comprehensive major medical health insurance coverage.

Strategies for Finding Cheap Health Insurance

Now is the time to put your new health insurance knowledge to work saving you some money. Granted, everyone’s situation is different and options and laws vary from state to state (health insurance is regulated on the state level rather than the federal level), so use these strategies as general guidelines rather than hard and fast rules. Overall this is a decision making framework that everyone in the US can use to find the best health insurance:

1. If you are offered group health insurance through your employer and the employer is paying all or most of your premiums, then chances are you should sign up for the group plan because it’s basically free money at that point. You are unlikely to find an individual health insurance plan that is less than 1/3 of the cost of the group plan.
2. If you are offered group health and your employer is paying your premiums but is not willing to pay the premiums for your spouse or children, then as long as your family is relatively healthy you should almost always opt for a group plan for you and an individual plan purchased on the private market for your spouse and children. Often, you can even find similar individual health insurance coverage from the same insurance company for your spouse and kids as what you have, that way you will know for sure that your family Doctor’s and hospitals all accept your insurance.
3. If you have major health issues (cancer, recent heart attack, many expensive prescriptions, etc.) and you have the opportunity to get group health insurance then you should take the group health insurance coverage because even if you are approved for an individual health insurance plan (unlikely because of your major health issues), you will likely get those major pre existing conditions excluded from coverage (or sometimes they will drastically increase your premiums in order to still cover those conditions).
4. If you are perfectly healthy and your employer is not willing to chip in much at all towards your group health plan then you almost always will save money (often a substantial sum of money) if you compare individual health insurance benefits out on the open market.
5. If you have major health issues and you currently have health insurance but are concerned that your current coverage might not last (because you are leaving your job or your COBRA coverage is set to run out soon or any other number or reasons) then you should ask a knowledgeable agent or financial planner about the HIPAA health insurance laws. HIPAA laws offer very specific protections to people who have done the responsible thing and maintained health insurance coverage but through no fault of their own have lost coverage and are unable to get coverage. In these circumstances the HIPAA laws require insurance companies to offer an individual health insurance plan on a guaranteed issue basis that covers all pre existing conditions from day one. The HIPAA laws are not often talked about and are not even known by most agents. But to do a full write up of how HIPAA can help health insurance shoppers is a topic for another article on a different day.

Now that you understand the differences between individual health insurance and group health insurance and you are equipped with 5 strategies for saving some of your hard earned money when buying health insurance, it is time to put your knowledge into action. Just like it is very important to shop around and put into action the various ways to lower your auto insurance rates it is also the same with with health insurance. Be sure to do your homework and compare quotes from many different health insurance providers to find the plan that will best meet your needs. What additional strategies do YOU have for finding a cheap health insurance plan?

About the Author: Joel Ohman is a Certified Financial Planner and President of 360 Quote LLC.  He is a serial entrepreneur and is currently spearheading several successful consumer comparison websites including Credit Card Chaser and Health Insurance Providers.

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