Individual vs. Group Health Plans? What You Need to Know
Main Points
The idea of individual vs group health plans came from how the insurance industry and healthcare changed over time
Individual health plans are purchased by individuals for themselves or their families
Group health plans are subsidized by the employer and eligible employees sign up for the plan
Healthcare and the insurance industry have certainly changed over time. Even with the implementation of the Affordable Care Act (ACA), health insurance and the healthcare industry always seem to shift.
The idea of individual vs group health plans came from how the insurance industry and healthcare changed over time. Before health insurance was popular, healthcare needs were covered by something called "sickness insurance". It provided supplementary income to lessen the effect of the financial loss of missing work.
However, during World War II, wages were frozen by the National War Labor Board and there was a shortage of workers. The Revenue Act of 1939 established an employee tax exclusion for compensation for injuries, sickness, or both under workers' compensation.
All of these factors played into the development of group and individual health plans and what makes them attractive from a tax or FICA perspective. However, it is important to understand the difference between them so that you know what insurance type you are dealing with.
Individual health plans are purchased by individuals for themselves or their families. This type of insurance is usually purchased by the self-employed or those who are employed but are not offered health insurance by their employer.
These types of plans vary in many different ways, but individual health plans were regulated to a more specific degree with the passing of The Patient Protection and Affordable Care Act (ACA).
The ACA made a federal mandate for all people to have minimum essential coverage for themselves and their dependents or pay a penalty from their tax returns.
The ACA allows individuals to shop and purchase healthcare on the marketplace or exchanges. Key provisions for patients with individual plans much include:
Plans may no longer limit or deny benefits to children under 19 due to a pre-existing condition
Children under the age of 26 are eligible under their parent's plans. This applies even if they are married, living with their parents, attending school, or are financially dependent on their parents
Lifetime limits on most benefits are banned. The law also banned annual dollar limits on most covered benefits. However, a health plan may place an annual and lifetime limit on healthcare services that are not considered essential
Appeal rights for patients on denied coverage. If a patient has a terminated health plan, the patient can appeal the denial both internally and externally
Expanded preventative health coverage including depression screening
The ACA also requires individual health plans to cover mental health services.
Group health plans are subsidized by the employer and eligible employees sign up for the plan. In the case of group health plans, the employer will decide to offer a plan. Employers decide how much of the premium they will pay and how much the employee can/has to contribute.
The most common types of group insurance plans are:
Fully Insured Employer Groups
Small Employer Groups
Self-Funded ERISA
Association Group
Each of these plans offers specific benefits and costs that are dependent on the employer. In some cases, the employer contracts directly with the insurance company so the employer can pay a premium at a fixed rate for the year based on the number of employees. In other cases, the group contracts with the insurance company and pays for each claim as it is incurred instead of paying a fixed premium.
As a provider it is important that you are aware of all the different health plans and options that exist so that you can successfully navigate the changes made in the industry. You will need to know what kind of insurance plan your patient has so you can effectively bill for your services and ensure that your patients can continue to see you for the long term.
