Individual vs. Group Health Insurance: What’s Different and Why Does it Matter?

Having health insurance is vital. The health care plans can prove to be very useful and timely at a time life takes a sudden turn. Now that we agree on that, let’s move on to the next big debate. What is the difference between individual and group health insurance, and does the difference actually matter?

In a broad classification of health insurance, the two methods to access are individual insurance and group insurance. Both these types of insurance are used by many. But not a lot of us know the exact difference. So, read this article to know about the differences between group and individual insurance.

Differences between individual and group health insurance

Group health insurance is often provided to employees through the employer. It takes into consideration different factors like the age of the employees, the industry they work in, and other similar conditions. Therefore, it is also essential that you apply for group coverage along with the others. On the other hand, individual health insurance is applied by an individual. This health coverage is additional coverage above and beyond what the government will cover. For individual health insurance, several plans are based on medical history, age, and other conditions.

In insurance, there are several categories, like eligibility requirements, cost sharing, existing medical conditions, etc. Here are a few differences.

Eligibility

The basis of eligibility differs for both group insurance and individual insurance. While you are required to show medical evidence for individual insurance, you are automatically eligible for group insurance without supplying medical evidence. So, the eligibility for group insurance is more work-related and factors in categories like the minimum number of work hours. So, group insurance is more accessible for many than individual insurance. On the other hand, medical evidence and related information are essential to get individual insurance. There are a few plans that do not require your medical evidence, but most individual insurance requires it. But beware, there are chances that coverage may be denied.

Coverage for medical conditions

In individual health insurance, as we already discussed, there are chances that the coverage may be denied, especially based on pre-existing conditions. Such pre-conditions include diabetes, cancers, and others. Similarly, issues like smoking and the amount of impact on the person’s age can also affect coverage and coverage costs. However, group insurance coverage does not take into consideration pre-existing conditions. But the coverage does not cover all pre-existing conditions as some conditions mentioned in the clauses are not included in the coverage.

Other differences

When we talk about other differences, the key factors are

• There is cost-sharing available in group insurance, which is not the case with individual insurance.
• The insurance coverage as group health insurance is tied to employment. But it is not tied to employment in individual insurance.

Cost differences

Another big difference between group health insurance and individual health insurance is the cost you invest in. While the coverage might be the same or comparable, there is a huge difference in how much you pay. The group insurance will cost less than individual insurance for the same or comparable coverage applied. 

Here are the reasons

• In group insurance, risk pooling helps. That is, the risk of a claim is across several people who are considered healthy. For instance, if an employer applies for insurance for his 30 employees, then the risk for the insurance is spread across all 30 people.
• In group insurance, the employer is entitled to pay 50% of the premiums to avail of most benefits. In individual insurance, the individual pays the entire premium without any cost-sharing taking place.
• The third reason is tax. In group insurance, the cost of the benefits is taken from an employee’s before-tax paycheque. However, in individual insurance, the individual pays the premium with after-tax dollars.

So, all these factors add to the additional cost in the premium paid to the individual insurance.

Policy termination differences

Like applying and paying premiums, there are also a lot of differences if you choose to terminate your policy. However, there is one likely doubt with most people who are siding with group health insurance. What happens when my employment ends at the company? Does my policy get terminated?

Well, the coverage ends with your employment except for a few specific situations. For example, if you are a retiring employee or the policy is a part of a severance package, your coverage might be extended. But do not worry. When you lose your group coverage, you do not lose it all. Instead, you get a chance to convert the benefits to individual coverage. And what more? The medical evidence that is required in typical individual coverage is waived. While the policy termination in individual health insurance is not related to the employment, the kind of insurance needed and received might vary based on your job role.

Tax

For employers, group insurance is more of a tax write-off, and the premium amount paid from the employer’s side is a taxable income for the employee. On the other hand, the amount shared by the employees is deducted directly from the employee’s pay. So, the premium paid is used from pre-tax dollars. In the case of individual insurance, the pay they make is post-tax dollars, which can be claimed as a medical expense on a personal income tax return. There is also disability insurance in which the amount paid by the employer is taxable. So, in most cases, many group disability plan premiums are paid entirely by employees.

Wrapping Up

When you claim the benefits, there are other tax implications to consider as well. Some reasons support both insurance types, and you can avail of different benefits based on the insurance you apply for. But if your company mandates group insurance or group coverage is available, it is advantageous. So, it is wise to choose the kind of insurance based on your needs and necessities and avail benefits accordingly.