Group vs. Individual Medical Insurance

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What's a 2-Person Company to do?

If you’ve got half an ear to the ground, you’ve probably heard something about the new high deductible health insurance plans that work in concert with Health Savings Accounts (HSA) to help people save money on health insurance and related medical costs. Those of you with small group plans may be wondering whether to stay with your current group plan, switch to a lower-premium group high deductible HSA plan, or apply for lowest-premium individual high deductible HSA plans.

Let’s assume for the sake of this discussion that you and your spouse:

• own a home-based S-corporation
  
• have no employees
  
• are both currently insured with a small group plan featuring a $20 copay for basic services
  
• would like to decrease the cost of your medical insurance
  

Now, consider the following questions.

Decision #1: Can you make it past the underwriters?
Individual health insurance will likely be the best buy, but it is also underwritten. That means that the insurance company evaluates your health history—and sometimes your medical records—to determine if it will offer you coverage.

If you or your spouse visit the doctor regularly for check-ups, are not struggling with a serious medical condition, are not on several prescription drug medications, and are within normal height and weight guidelines, you’ll likely have no trouble qualifying for individual medical insurance.

Let’s say that both of you apply but one of you is denied coverage due to a problem health history. Even then, individual health insurance can work. The healthy spouse can accept individual coverage, and the other spouse can apply for coverage through Minnesota Comprehensive Health Association (MCHA), the state’s health plan for those who have been turned down for individual coverage.

Alternately, you can keep your guaranteed issue (not underwritten) group plan, but at renewal, switch to a group high-deductible HSA-compatible health plan. This will save you some premium dollars over your current group plan, but won’t save you as much as you could with individual coverage.

Decision #2: Do you consume a fair amount of health care?
Some people—even perfectly healthy people—like to visit the doctor frequently. If they feel a pain, they like to check it out right away. If they have a health issue, they like to consult with several different doctors. They may also try medical solutions like prescription drugs before, or in conjunction with, non-medical solutions like diet and exercise.

If this description fits you or your spouse, you may want to remain on your group plan. You’ll pay more up front in premium, but high users of health care dollars often feel better knowing that they only have to pay a copay in order to receive health care services.

Question #3: Are employees likely in your future?
If you expect to hire employees sometime soon, there may be reason to stay with your current group plan. If you want to be in a position to offer these future employees a group medical insurance benefit without health underwriting, you’ll need a group plan in place and you’ll need to pay at least 50% of their premium.

If, on the other hand, you don’t see the need to offer group health insurance, bypass group coverage and pursue your own individual health insurance. If you do hire an employee, consider boosting the wage offer to help pay for individual coverage.

Question #4: How much can you save by switching to individual coverage?
To tackle this one, you’ll need to consult with a health insurance adviser. In the meantime, consider the following sample premium comparison we developed for one of our Twin Cities-based S-corporation client companies. The husband and wife in this example are in good health.

For individual coverage, this S-Corp owner chose a $3,600 deductible for the entire family and preventive and prenatal care covered first-dollar. Benefits kick in 100% after meeting the deductible.

Their current small group plan features no deductible, an out-of-pocket maximum of $5,000 for the entire family, $30 copay for illness or injury, preventive care paid 100%, 80% coverage for inpatient, outpatient, urgent and emergency, and prescription medications paid 80% on first 10 needed.

Premium Savings by using individual coverage:

$542.50 per month or $6,510 per year.

So, premium savings can be substantial when you switch to an individual high-deductible plan. But, as the above questions reveal, premium savings are not the only issue. Your health, your health care consumer habits, and your hiring plans also come into play.

Obviously, this is a general discussion; to assess your own insurance needs, contact a qualified insurance adviser.

is a health and long term care insurance advisor with Benefit Management Consultants, Inc., a three-person family business operating out of its Edina "home" office, http://www.bmcbenefits.com/. Contact her at 952-922-6625.