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What is Individual Health Insurance? 
An individual or family health insurance policy is a policy purchased from an insurance company covering you and selected family members. The terms individual policy, family policy, individual and family policy, and individual or family policy all mean the same thing—a policy purchased by a consumer directly from an insurance company covering an individual or a family. 

It works just like car insurance. With individual health insurance, the risk is spread over a large group of people—hundreds of thousands, even millions, depending on the plan and insurance company. 

What is Group Health Insurance?  
Group health insurance is insurance provided by employers and offered to employees and dependents of employees. The premium cost is typically split between the employer and employee, with the employee typically paying all or most of the cost to add their dependents to the employer plan.  

With group health insurance, the risk is spread over the employees in the company who participate in the plan and the premiums typically increase every year based on the previous year’s healthcare costs of the group. 

The History of Individual Health Insurance 
Since 2000, the percentage of Americans covered by group health insurance has steadily declined. Facing double-digit growth in health insurance premiums, employers have either eliminated health benefits or redesigned the plans to 
include higher deductibles, larger co-payments, and greater premium sharing by employees. Fortunately, a paradigm shift is occurring in the way businesses offer employee health benefits—a shift from an group health insurance to employer-funded individual health insurance. This shift from group health insurance to individual health insurance was taking place gradually from 2002 to 2014, until January 1, 2014, when the Affordable Care Act (often called ACA or Obamacare) mandated major changes to the market for individual health insurance. These changes include: 

1. The requirement for every state to have a new Health Insurance Marketplace to buy individual insurance. 
2. The requirement for all individual health insurance companies to accept all applicants regardless of their health. 
3. The availability of new federal subsidies—known as premium tax credits—for American families earning less than 400 percent of the federal poverty line (or less than approximately $96,000 per year in 2014). 

As a result, the market for individual insurance is expected to expand from 30 million insureds in 2012 to more than 150 million insureds by 2025.  

Prior to 2014, the annual cost of individual health insurance was about $2,500 a person and comparable group health insurance cost was about $6,000 per person—but there was a catch. In 45 states, only healthy people and their healthy family members medically qualified for individual health insurance. 

Individual health insurance plans could deny coverage or charge more for coverage based on health conditions, whereas group health insurance had to cover any employee at the same price regardless of their health. The main reason companies offered group health insurance (despite the much higher price tag) was because it used to be difficult and expensive for employees with a family member with a pre-existing condition to find health insurance on the individual market. 

In 2010, the Affordable Care Act was passed by Congress which mandated that, starting in 2014, the benefits and eligibility requirements for individual health insurance be roughly the same or better than most group coverage. 

Most importantly, the Affordable Care Act provides enormous federal subsidies to Americans earning less than $45,000 for singles and $100,000 for families who purchase individual health insurance—capping their after-subsidy monthly 
premium cost at a fixed percentage of their income regardless of the cost of their individual policy. 

The Affordable Care Act also requires all individual health insurance policies to cover a list of essential health benefits without any monthly, annual, or lifetime limitations. Thus, other than the fact that employees lose their group health insurance when they lose their job, price is now the most important difference to consumers between group health plans and individual health plans. 

In 2014, the price for an unsubsidized individual plan purchased on the Health Insurance Marketplace is about $3,000 per year, which is one-half the price of a similar benefit, group plan costing approximately $6,000 per year per person. And, most Americans earning less than $100,000 per year for a family or $45,000 per year for an individual will receive a federal subsidy for, on average, half the unsubsidized price of individual coverage. If your family is eligible, this subsidy reduces the average individual plan to about $1,500 per year per person in cost, 
which is approximately one-fourth the price of comparable group coverage. 

Why Individual Health Insurance Works 
Individual health insurance is now equal (and in some cases better) than group health insurance, for about half the price (pre-subsidy) and about one-quarter the price (post-subsidy). With individual health insurance, you get to: 

1. Pick the plan that best fits your needs, including your doctors, for about half the cost of an equivalent group plan. 
2. Keep your individual health insurance policy for as long as you want, completely independent of your employment. 
3. Receive a federal subsidy for, on average, about half the cost if you are a family earning less than $100,000 per year or a single person earning less than $45,000 per year. 

Here are 10 reasons individual health insurance works. 

Reason #1: Individual Health Insurance is Portable—You Keep Your Health Insurance If You or Your Loved One Gets Sick 
Unlike group health insurance, you get to keep your health insurance if you get sick and lose your job. Your policy remains the same as long as you pay the premium regardless of what happens to your employment. If fact, your employer typically doesn’t even know whether you have individual health insurance. 

With individual health insurance, there is no COBRA when you lose your job because your job has nothing to do with your health insurance.  

Most people are surprised to find out that with individual health insurance they get to keep their policy as long as they pay the premium, regardless of what happens to their employment. That’s because, since World War II, most Americans believed that the only way to qualify for health insurance was to get a job with a company that had a group plan. And, prior to 2014, they were partially correct—especially if they or a member of their family had a health issue or a pre-existing condition. 

But now, thanks to the Affordable Care Act, everyone qualifies for individual health insurance regardless of their health or if they have a family member with a pre-existing condition. And, most Americans qualify for an enormous federal subsidy that sets the monthly cost of their individual policy at a fixed percentage of their income regardless of what happens to the cost of healthcare or their pre-subsidy monthly premium. 

Reason #2: Individual Health Insurance is 20 to 60 Percent Less Expensive—You and Your Employer Pay $4,000 to $12,000 Less for the Same Coverage 
Today, because everyone medically qualifies for individual health insurance with no extra charge for pre-existing conditions, the main difference to consumers between a group coverage and comparable individual coverage is the price. While the price in 2014 for a group plan is approximately $6,000 per year per person, the unsubsidized price for an individual plan purchased in the individual market is only about $3,000 per year per person. 

For most employees—due to an enormous federal subsidy only granted to employees not offered qualified affordable group coverage—the cost of group coverage is actually, on average, four times (400 percent) the cost of comparable 
individual coverage. Depending on the cost of living in your state and city, if your family income is less than roughly $100,000, the ACA mandates a maximum monthly net price for individual health insurance based on family size and annual income. 

For most employees, the pre-subsidy (unsubsidized) cost of individual health insurance is about one-half the cost of group health insurance, and the after-subsidy cost is about one-fourth the cost. But it gets even better. Since each 
taxpayer’s subsidy amount is calculated so that they pay a fixed (by Congress) percent of their income for individual health insurance, once an employee gets an individual health insurance policy their premium can almost never go up unless their income increases. They are immune if their actual policy increases in price 
because their subsidy will increase by the same amount. 

What’s the catch? Only employees not offered affordable, qualified, group coverage at work are eligible for the federal subsidy. 

During the first three months of 2014, approximately 7 million people received individual health insurance from the federally mandated Health Insurance Marketplaces—the average cost for everyone after subsidies was approximately 
$82 per month ($984 per year) per person. The average cost for those not receiving subsidies was $346 per month ($4,152 per year) (Kaiser Family Foundation 2013). 

For example, if you are a family of two in Dallas, Texas earning $40,000 a year in modified adjusted gross income, your price for a Blue Cross Blue Shield Silver plan on the individual exchange is about $506 per month before you receive a federal subsidy of $230 per month for a net cost of $276 per month. Notice how the subsidy scales down with increased income. 

. If your modified adjusted gross income is $30,000 a year, your subsidy increases to $356/month, for a net cost of $150/month. 
. If your modified adjusted gross income is $40,000 a year, your subsidy decreases to $230/month, for a net cost of $276/month. 
. If your modified adjusted gross income is $50,000 a year, your subsidy decreases to $111/month, for a net cost of $395/month. 
. If your modified adjusted gross income is $60,000 a year, your subsidy decreases to $31/month, for a net cost of $475/month. 
. If your modified adjusted gross income is $70,000 a year, your subsidy decreases to $0/month, for a net cost of $506/month. 

These subsidies change dramatically based on the size of your family. If your family lived in Dallas, Texas, had three children (for a total family size of five), you would be eligible for a much larger subsidy even if your income rose to $110,000 or more. 

Nationwide, the average individual policy sold in 2014 costs about half the cost of comparable unsubsidized group health insurance. But since most Americans qualify for a federal subsidy based on their income, the average individual policy sold in 2014 actually costs, on average, about one-fourth the cost of group coverage. 

That’s $4,000 to $12,000 in savings per year for a family of four for the same hospitals, same doctors, and same prescriptions. Moreover, if your household income is less than $100,000/year per family or $45,000/year per single, the cost of individual health insurance is one-tenth to one-fourth the cost of group coverage. 

Reason #3: Individual Health Insurance is Permanent—Your Coverage Cannot Be Canceled As Long As You Pay Your Premium 
One of the best things about individual health insurance versus employer-provided health insurance is that you control the policy. Your coverage cannot be canceled as long as you pay your premium. In contrast, your employer may cancel group coverage or change the benefits at any time, with little or no notice to you, and there is no COBRA available when the plan is canceled. 

Reason #4: Individual Health Insurance is Not Limited—You Get to Pick Your Doctors and Hospitals 
When you choose your own individual health insurance policy, you get to choose which network of doctors and medical providers you wish to use for your family instead of having this choice made for you by your employer. 

The ability to choose your own medical providers and type of network is one of the best features of individual health insurance. Even if you have a high-deductible, individual policy where you pay most of your own medical expenses, you pay each medical provider only the discounted price it would otherwise have received from an insurance company or large employer if you didn’t have a high-deductible policy. 

Reason #5: Individual Health Insurance is Customizable—You Choose Your Deductible and Copays 
When you select an individual health insurance policy, you choose your copay, annual deductible, and coinsurance. 

Understanding Deductible, Copay, and Coinsurance 

Annual deductible—This is the annual amount of your medical expenses that you must pay before your health insurance company begins paying providers or reimbursing you for claims. Traditional plans have deductibles of up to $1,500, 
as well as copays for doctor visits and prescriptions. High deductible plans have deductibles from $1,000 to $10,000, but much lower premiums. 

Copay—This is the amount that you pay each time you visit the doctor, pharmacy or other medical provider. If you have children and visit the doctor often, you are typically better off with a higher premium plan that charges you a 
fixed amount (copay) for each doctor visit regardless of what is done during the visit. 

Coinsurance—This is the amount, typically about 20 to 30 percent, that most insurance companies expect you to pay on your annual medical expenses after you have met your deductible. Fortunately, most coinsurance clauses have an 
upper limit of about $4,000 to $10,000. Your maximum coinsurance obligation plus your annual deductible is called your out-of-pocket maximums—referring to the maximum out-of-pocket annual expense you could incur under the policy. 
Some newer high-deductible plans, including many HSA plans, do not charge you coinsurance; they pay 100 percent of your medical expenses once you have met the deductible. 

For some families who are relatively healthy, it makes sense to save a few thousand dollars a year on their premium by accepting a higher annual deductible or an out-of-pocket maximum of $10,000 or more. But for other families who don’t have the cash, and/or have a family member with an ongoing medical issue, it often makes more sense to pay a higher premium to get a lower annual deductible or out-of-pocket maximum. 

When you choose an individual health insurance policy, you get to choose from a seemingly unlimited array of amounts for copays, annual deductibles, and coinsurance. In contrast, you typically get only a few choices with group coverage. 
 
The Affordable Care Act mandates that individual plans sold on the Exchanges be offered at five levels—Bronze, Silver, Gold, Platinum, and Catastrophic. These levels have nothing to do with the level of care you get, just the deductible, copays, and type of coverage you have access to. 
 
Reason #6: Individual Health Insurance is Subsidized—You May Be Eligible for a $2,000 to $12,000 Per Year Share of the Trillion Dollar Federal Subsidy 
Since January 1, 2014, most individuals purchasing individual health insurance on their state’s Health Insurance Marketplace are eligible for a federal subsidy when they purchase individual health insurance. The subsidy is administered as a tax credit but it is effectively a simple monthly discount for most consumers since you don’t have to wait until you file your personal tax return to receive it.  

Here’s how the federal subsidy works. 

Let’s say you live in Dallas, Texas, have a family of five, and earn $60,000 a year. You go to healthcare.gov to shop for a Blue Cross Blue Shield Silver plan that is roughly equivalent to a typical group plan with a $30 copay per doctor visit, $0 copay for generic prescriptions, and a $500 deductible for an emergency room visit. You choose a Blue Advantage Silver HMO plan with a $2,500 annual deductible per person and an unsubsidized premium of $927/month.  

When you enter in your annual modified adjusted gross income (MAGI) of $60,000 to purchase your $927/month premium individual policy, you are told you are eligible for a federal subsidy (technically called a tax credit) of $580/month for an after-subsidy monthly premium cost of $347/month ($927-$580 = $347). You then are given a choice between having the federal government pay monthly all or part of this $580/month subsidy amount to your insurance company towards your premium, or receive this $580/month as a refund on your income taxes when you file your personal income tax return the following year. Consumers are expected to overwhelmingly elect to have the federal subsidy applied each month to their premium. Now let’s see what happens if your annual income was $65,000 versus 
$60,000.  

When you enter in your annual income of $65,000 to purchase your $927/month premium individual policy, you get a federal subsidy (technically called a tax credit) of $517 a month for an after-subsidy monthly premium cost of $410/month ($927-$517 = $410). The federal government will start immediately paying your insurance company $517/month towards the premium of this policy.  

Since the federal subsidy is administered as a tax credit, at the end of the year your MAGI must be $60,000 or less. If not, you will owe the federal government a refund of part of the federal subsidy you received up to $580/month ($6,960/year). For example, if you got an unexpected $5,000 bonus on January 1 and your annual income rose to $65,000, your retroactive federal subsidy (tax credit) would be $517/month versus the $580/month you received—and thus you would owe the federal government $63/month or $756 for 12 months. Conversely, if your annual income fell to $58,000, you would get a tax refund of $288 ($24/month times 12 months). 

Eligibility for the federal subsidy is limited to Americans who meet certain income and family size requirements, and who do not have access to qualified affordable health insurance through an employer or another government program. 

Eligibility is based on a standard called the federal poverty level (FPL). The tax credits cap the cost of health insurance between 2 and 9.5 percent of annual household income, on a sliding scale based on income, for individuals and families who earn up to 400 percent of FPL. This translates to an individual earning up to $45,960 in 2013 and a family of four earning up to $94,200 in 2013. 

Families with more than four persons receive subsidies even with annual incomes of $120,000 or more. When the HealthCare.gov website was first released in October 2013, the only way to get rates and information on plans was to go through a cumbersome registration and verification process. However, this was recently changed, and now healthcare.gov provides consumers with free, easy access to rates, plans, and the amount of their federal subsidy without even giving their name. 

Reason #7: Individual Health Insurance is Stable—You’re in a Large Group and Your After-Subsidy Cost Can Only Increase with Your Income 
When you purchase an individual health insurance policy, you become a member of an insurance group. But it’s not the relatively small group limited to the employees of one company—it’s the large group of people in your state who purchased a similar policy from the same insurance company in a given time frame. 

Monthly premiums paid for individual policies typically increase annually with the level of inflation or overall medical costs. The insurance company is allowed to ask their state insurance regulator for a rate increase based on the actual prior year’s health costs for everyone in your group. 

However, unlike with group health insurance policies, these groups of individuals are so large that even the catastrophic illness of hundreds of members would not result in a significant increase in your monthly premium. 

In contrast, in a small company, if one of the employees gets an expensive illness like diabetes or cancer, the following year the insurance company could double the cost that employer is paying for health insurance. Many employers are forced to pass increased costs on to employees or drop health insurance coverage because of catastrophic employee illnesses. Huge, sudden increases in health insurance costs generally don’t happen with individual health insurance because your group is so much larger. 

There are also laws and regulations requiring individual health insurance policies to be renewable—meaning you can’t be dropped by your insurance company for any reason except nonpayment of your premium. 

State regulations also protect you from significant increases in your individual health plan’s monthly premium. Insurance companies are generally prohibited from raising premiums on existing members above the levels paid by new people choosing to join. 

But even if a large number of people in your group incur catastrophic health expenses, it is unlikely that the insurance company will increase your monthly premium by a pro rata amount. That’s because a large rate increase will cause consumers, particularly healthy ones who are not afraid to change networks, to go on the Health Insurance Marketplace during their next enrollment period and choose a cheaper policy. 

Thanks to the Affordable Care Act, even this potential for rising premiums based on the rising cost of healthcare does not apply to most people who purchase individual health insurance on a Marketplace and are eligible for the federal subsidy. 

If you are eligible for the federal subsidy, in most cases your premium can only increase when your annual income increases—you are basically immune from increases in the unsubsidized cost of your individual insurance policy due to rising healthcare costs. That’s because the size of your federal subsidy automatically changes so you pay a fixed percentage of your annual income for health insurance, and this percentage depends mostly on your income, your family size, and where you live. 

For example, in 2015, let’s assume you earn $60,000 per year and purchase a Silver policy for your family on your state’s Marketplace with an unsubsidized price of $900 per month. The Affordable Care Act says that you should pay 6 percent of your income after subsidy, $3,600 per year or $300 per month, for your family’s basic individual health insurance. Thus, you would receive a federal subsidy of $600 per month, so that the after-subsidy cost of your policy is $300 per month ($900 unsubsidized cost minus $300 after-subsidy cost equals $600 per month federal subsidy).  

Now, assume that in 2016 the unsubsidized cost of your policy rises from $900 per month to $1,050 per month, but your income of $60,000 per year remains the same. Your after-subsidy cost is fixed by ACA at 6 percent of your income (based on $60,000 per year) and thus your federal subsidy would increase from $600 per month to $750 per month ($1,050 unsubsidized cost minus $300 after-subsidy cost equals $750 per month federal subsidy). 

It’s a little more complicated than this. This is because once you figure out the amount of your federal subsidy, which is based on the second lowest-cost Silver plan, you can then increase or decrease your after-subsidy cost by choosing a higher (Gold) or lower (Bronze) benefit policy. In the example above, in 2015 you could apply your fixed $600 per month subsidy to a $750 per month unsubsidized Bronze plan for an after-subsidy cost of $150 per month. Or you could buy up to a $1,000 per month Gold plan and pay $400 per month after-subsidy cost. 

Separately from this price protection for consumers against rising healthcare costs, the Affordable Care Act is subsidizing insurance companies to keep individual health insurance premiums low permanently and especially during the first three years of Obamacare. 

Reason #8: Individual Health Insurance is Good for Careers—People Are Free to Change Jobs Based on What’s Best for Their Career Versus What’s Best for Their Health Insurance 
Changes that used to take place in 50 years or more now take place in five years or less. While employers would like their employees to think that their employer is helping them keep up with technology, few employers can afford to spend the money it takes to train and retrain existing employees, versus hire new employees with the skills the employer needs. Similarly, the primary way for many employees to actualize their full potential is to change jobs and/or careers every three to five years. 

Employees who have individual health insurance versus group coverage find it easier to change jobs because their job change has minimal or virtually no impact on their family. Every employee should get individual health insurance separate from their employer in order to be poised to maximize their potential and take full advantage of every opportunity they have to advance in their careers.  

Reason #9: Individual Health Insurance is Good for Business—Management Spends More Time Focusing On Their Customers and Products Versus Employee Health Benefits 
While many employers complain about the cost of group health insurance, the main economic reason why individual health insurance works is that it keeps management focused on improving their products and services versus improving 
their group health insurance. 

In our highly specialized economy, vertical integration is a thing of the past. The more a company relies on third party, specialized, outside suppliers to help produce its products or services, the faster the company can adapt to changes and keep its own product or service on the cutting edge of technology. This is also true as companies help their employees get the best individual health insurance for themselves and their families. 

Why? Because group coverage disqualifies employees from getting better subsidized individual coverage on their state’s Marketplace. 

Reason #10: Individual Health Insurance is Good for America—It Empowers Americans to Manage Their Own Healthcare and It Makes American Businesses More Competitive 
Ultimately, individual health insurance is not just cheaper than group coverage, it’s much healthier. Today, the Affordable Care Act, by mandating essential health benefits for both types of coverage, has made price the major difference between individual health insurance and group health insurance. But tomorrow, the major difference will be quality of care and preventive or wellness care.  

Once consumers get used to purchasing their own individual policies through online exchanges, consumers will seek out what they really need—better medical providers, transparency regarding providers, and preventive/wellness care. In every area of our economy where consumers have choice—from more affordable restaurants to managing retirement benefits to purchasing retail products—technology has allowed our economy to deliver more for less. This will be true of healthcare once consumers are allowed to make their own decisions on their health insurance and, ultimately, their healthcare providers.  

Additionally, compared to their overseas competitors who do not offer group coverage to employees, some U.S. companies today are no longer price competitive. Particularly in manufacturing, many employers can no longer afford 
the enormous cost, in both management time and money, of providing group coverage. Switching their employees to individual coverage will make many of these companies competitive again, as well as greatly improve the health of their employees. 

The Common Sense Solution - Employer-Funded Individual Health Insurance 
Individual health insurance works for you, your family, and your company because: 

1. Individual health insurance is less expensive. 
2. Individual health insurance enables choice. 
3. Individual health insurance stays with you when you switch jobs. 

This begs the question: Can you choose your own individual health insurance and get your employer to cover the cost? 

The answer is an emphatic, “Yes!” 

Your company may cancel its employer-provided health plan and give all or part of the savings to employees to help them cover all or a portion of their individual health insurance premiums. This concept is commonly referred to as defined contribution health benefits. 

10 Reasons Individual Health Insurance Works

For Small Businesses and Employees

Introduction

Today, individual health insurance coverage has new advantages making it a viable, affordable coverage option. Moreover, most American families earning less than $100,000 a year are eligible for a federal subsidy to pay for individual health insurance—but only if their employer does not offer group coverage. The amount of the subsidy depends on income and family size and pays monthly, on average, about half the price of individual coverage—making individual coverage after the subsidy about one-fourth the price of comparable group coverage. 

As a result, the market for individual insurance is expected to expand from 30 
million insureds in 2012 to more than 150 million insureds by 2025. 

In this eBook, we will cover the following topics: 

• What is Individual Health Insurance 
• What is Group Health Insurance 
• The History of Individual Health Insurance 
• 10 Reasons Individual Health Insurance Works 
• The Common Sense Solution - Employer-Funded Individual Health Insurance 
  

Contact Us - info@dropthegroup.com

Defined Contribution: Drop Group Employer Coverage and Switch to Individual Health Insurance