How can personal policies be so much cheaper than group while still providing better benefits?
See how this is possible
What is a Personal insurance policy?
Personal health policies in 45 states typically cost less than 1/2 the cost of group coverage, often from the same carrier and for even better coverage.
A personal health insurance policy, sometimes called an "individual" or "family" health insurance policy, covers you and your designated family members. You purchase a personal health policy through a licensed health insurance agent who is appointed to represent the insurance carriers in your state.
Personal health policies are the fastest growing form of U.S. health insurance. The number of personal health policies grew from 12 million members in 2002, to 35 million members in 2012, and is expected to reach 60 million members by 2014. In contrast, the number of people covered by employer group policies has substantially declined—less than 40% of U.S. small employers now offer group policies.
The price of a personal health policy is based on your age and your health at the time of application—but once insured, your premium cannot be increased because you become ill.
Once you obtain a personal health insurance policy, in virtually all states:
- You and your covered family members are guaranteed the right to renew your personal policy until age 65, independent of employment.
- Your renewal premium may not be substantially increased due to your claims experience—even if your carrier pays a claim for you of $1 million or more.
- Your renewal premium will increase when you enter a higher age band (typically every 5 years) or with general medical inflation—based on the claims of a very large group of people in your state who purchased similar personal policies.
- Some states set limits on annual increases regardless of medical inflation. Depending on your state, you should expect your premium to increase 5% to 15% each year from an initial price much lower than group coverage. See your local licensed agent for detailed information on your state.
- If you are healthy and don't like your proposed annual renewal premium, you can always shop around for a new policy just like you do with auto or homeowners insurance. Nationally, more than 300 different carriers, including 76 Blue Cross Blue Shield companies, offer personal polices.
In contrast, with an employer group policy:
- You lose coverage if you retire before age 65 (Medicare), or become ill and cannot work, or are needed at home to take care of a sick child or spouse.
- If you have more than 50-100 employees, the group renewal premium is increased each year based on the claims of your group—your individual share of this group premium could double even if you never file a single claim.
- In some states, if your company has less than 100 employees, your entire group could become unaffordable, if just one person filed a major claim.
- Your employer selects your coverage, doctor network, and annual deductible and there are little or no financial incentives to reward having a healthy lifestyle.
So, what's the catch—why doesn't every employer offer their employees personal health policies?
- Most people, even experienced group health insurance agents, incorrectly think that personal policies cost more than group policies. However, 45 states have put laws in place to allow carriers to sell personal policies to healthy people for much less than a typical employer group plan--provided the carrier guarantees that policyholders can renew without a rate increase based on their future illnesses. (The 5 states where insurance carriers are not allowed to offer personal policies at lower rates for healthy applicants are NY, NJ, MA, RI, and ME).
- Few employers and employees know that federal law since 2006 requires all states to offer state-guaranteed personal policies to employees with preexisting conditions that used to be covered by a group plan (called HIPAA-eligibles). Forty (40) states go beyond this federal mandate making such state-guaranteed personal coverage available to all their residents. See What about sick employees?
- The federal government now allows employers to reimburse employees, tax-free, for the premiums paid on personal policies--provided that employers comply with HIPAA, ERISA, and IRS privacy and non-discrimination rules. This new regulation can greatly reduce the after-tax cost of personal policies for employees and employers. See What is a ZaneHRA?