If your group qualifies as a small business, you may be able to save by getting group coverage.
A major finding of eHealth’s 2017 Small Business Health Insurance Report was that smaller groups signed up for group health insurance—group sizes as little as 3 or 4 people, which were not as common in previous years.
One reason for this shift in demographics in the small group health insurance market could be the rapidly increasing cost of individual plans. In other words, small businesses that wouldn’t normally provide health insurance for all employees are realizing that they can save on per-individual costs by opting for group plans that can cover everyone together under one policy.
So…is group health insurance cheaper than individual health insurance?
Oftentimes, small group health insurance plans are less expensive per person than individual plans . According to eHealth’s report, the national average small business plan deductible was 40% lower than the average deductible on an individual plan. For small business coverage, average prices are as follows:
- Premium for small business coverage: $397
- Deductible for small business coverage: $2,754
And for individual non-group coverage:
- Premium for individual coverage: $440
- Deductible for individual coverage: $4,578
Keep in mind that each plan has its own terms and limitations, so be sure to check the official plan documents to understand how that specific plan works. This article is only for general education.
Why is small business group health insurance cheaper than individual health insurance?
There are a few reasons why small group health insurance usually ends up costing less per person than individual plans.
- Employer contributions. For employees, a clear reason for affordability of group plans is that their employer generally pays for at least half of the premium.
- Tax benefits for employees. In addition to benefitting from employer contributions, employees are usually paying for their part of the premium with pre-tax money, which can add up to significant savings.
- Tax benefits for employers. As an employer of a small business, don’t think that all the burden of health insurance will fall on you though—there are perks to being a small business owner and providing small business group health insurance! You will likely pay at least fifty percent of the monthly premiums for your employees, but you may be able to deduct these costs from your business taxes. In some cases, you may even be eligible for special tax credits.
- Risk pool advantages. As the Small Business Administration explains, the spread of risk across a group is a fundamental theory of insurance. High costs of one insured person have a smaller effect in a larger pool—in other words, more people are paying to support the few who use the benefits of being covered to their full extent.
There are, of course, different reasons why plans cost less or more, and cost will vary from plan to plan. Make sure to check the plan details before choosing to enroll in group health insurance, and make sure you understand all the costs and covered services.
The small group health insurance market is relatively stable
In addition to being cheaper in the moment, it may be a relief for some people to know that in a very unstable market, the prices on small group health insurance plans have remained pretty similar for quite some time.
One thing that has remained consistent in the individual market: rising prices. Average premiums on individual plans increased 18% from 2016 to 2017, and another 16% between the 2017 and 2018 open enrollment periods. Year after year, prices continue to rise, but you’ll find that this is not the case when shopping for small group plans.
From 2016 to 2017, per-person coverage on group plans only increased by 8%, and the year before it actually decreased by 1%.
Better prices might be why smaller groups are switching to group coverage for the first time
The insight that very small groups who previously wouldn’t bother with group health insurance are starting to enroll in these plans, tells us that consumers are looking for affordable options to traditional individual health insurance. If you have a small business, it may be worth your time to look into small business health insurance to see if it could help you and your group members save on health insurance costs.
A licensed insurance broker can list the pros and cons of each model and help you develop a small group health insurance plan that is right for your small group. Always consult your tax and legal advisors to understand your specific tax and compliance situation. This article is for general information and not intended to provide any tax or legal advice.