Note: This should not be taken as tax or legal advice.
The answer is yes in most cases. The real answer depends on two things:
What state you reside in, and
What type of policy you are purchasing
A personal health insurance policy, sometimes called an "individual" or "family" health insurance policy, covers you and your designated family members. Personal health policies are the fastest growing form of U.S. health insurance. The number of personal health policies grew from 12 million members in 2002, to 24 million members in 2008, and is expected to reach 50 million members by 2012. In contrast, the number of people covered by employer group policies has substantially declined—less than 40% of U.S. small employers now offer group policies.
In 46 states, the price of a personal health policy is based on your age and your health at the time of application—but once insured, your premium cannot be increased because you become ill.
Once you obtain a personal health insurance policy, in most states:
You and your covered family members are guaranteed the right to renew your personal policy until age 65, independent of employment.
Your renewal premium may not be substantially increased due to your claims experience—even if your carrier pays a claim for you of $1 million or more.
Your renewal premium will increase when you enter a higher age band (typically every 5 years) or with general medical inflation—based on the claims of a very large group of people in your state who purchased similar personal policies.
Some states set limits on annual increases regardless of medical inflation. Depending on your state, you should expect your premium to increase 5% to 15% each year from an initial price much lower than group coverage. See your local licensed agent for detailed information on your state.
If you are healthy and don't like your proposed annual renewal premium, you can always shop around for a new policy just like you do with auto or homeowners insurance. Nationally, more than 300 different carriers, including 76 Blue Cross Blue Shield companies, offer personal polices.
It costs a typical employer the equivalent of 6-9 months in salary each time they have to replace a salaried employee—that’s $20,000 to $30,000 for a $40,000 manager in recruiting and training expenses, along with the potential lost revenue from customers.
Employers can save approximately half of these expenses, $10,000 or more per replaced employee, with a health benefits plan that helps them recruit new employees and retain existing employees.
Defined contribution health benefits provide many advantages over traditional employer-sponsored benefits. Rather than paying the costs to provide a specific group health plan (a "defined benefit"), employers can fix their costs on a monthly basis by establishing a defined contribution health plan that gives employers and employees full control over healthcare costs – the employer’s costs are predictable and controllable, while employees are given full control over their health care dollars and choose a portable plan that meets their exact personal needs. How do defined contribution health benefits work?
An employer gives each employee a fixed dollar amount (a "defined contribution") that the employee chooses how to spend. Typically, employees are allowed to use the defined contribution to reimburse themselves for personal health insurance costs or other medical expenses such as doctor visits and prescription drugs.
Under the traditional approach to health benefits, the company selects and funds the same insurance plan for all employees in a one-size-fits-all approach.
Alternatively, in a defined contribution approach, the employer designates a fixed amount of money, the “defined contribution”, and employees purchase personal health insurance directly from any insurance company they choose, selecting products that specifically meet their family’s needs and budget.
What is a personal health policy?
A personal health policy, sometimes called an "individual" or "family" health insurance policy, covers you and your designated family members. You purchase a personal health policy through a licensed health insurance agent who is appointed to represent the insurance companies in your state.
Personal health policies now cost 1/3 to 1/2 the price of similar-benefit employer-sponsored coverage in 45 states. This is primarily because insurance carriers in 45 states are allowed to: (1) price based on age bands and (2) reject or charge more to applicants for personal policies with pre-existing conditions.
If you or a member of your family are rejected or charged more for a personal health policy because of a pre-existing medical condition, you typically become eligible for state-guaranteed (“HIPAA-guaranteed”) or federally-guaranteed (“PCIP”) personal health insurance.
How do businesses determine the amount of money allocated to employees?
Providing different levels of benefits to classes of employees is at the core of benefits compensation and is routinely done by major corporations. With salary and other types of compensation, employers routinely compensate groups of employees differently. Field sales people are compensated differently than sales managers. Some employees get company cars, while others earn quarterly bonuses. Because health benefits are such an important part of compensation, why not provide benefits that vary by class of employee?
With defined contribution health benefits, businesses can create employee classes that offer benefits tailored to the company’s objectives, transforming a health benefit plan into a tool to find and keep great people.
For example, consider an electrical contracting company who struggled to hire and keep journeymen electricians in a very tight labor market. Instead of offering the same health plan to all employees, the company created separate classes for apprentices and journeymen and gave journeyman $350 more per month in their HRA. This large increase helps the company reduce attrition among journeyman. Plus, it creates a visible incentive for apprentices to complete the education required to become journeymen.
As there are no minimum or maximum contribution requirements, a business can design their defined contribution health plan to fulfill its exact recruiting and retention needs.
Conclusion
Recruiting and retaining key employees is essential to every business, and a company's health benefit program is a key part of the compensation they offer to their employees. Due to the rising costs of traditional employer-sponsored health insurance, defined contribution health benefits are gaining popularity in the U.S. Rather than paying the costs to provide a specific group health plan (a "defined benefit"); employers might want to consider fixing their costs on a monthly basis by establishing a defined contribution health plan.
Zane Benefits (www.zanebenefits.com), the leader in defined contribution health benefits. Zane works with brokers, agents and CPAs to transition clients to defined contribution solutions. Follow Zane at www.zanebenefits.com/blog.
This year's edition shows that U.S. health care spending experienced historically low rates of growth in 2009 and 2010.
The increase in spending for 2009 was the lowest rate in the 51-year history of the report – 3.8 percent. In 2010, the rate of growth was just 0.1 percentage point faster: 3.9 percent, reaching $2.6 trillion, or $8,402 per person. Health care spending accounted for 17.9 percent of the nation's gross domestic product.
Other key findings include:
Spending on private health insurance premiums totaled $848.7 billion in 2010 and increased 2.4 percent (premiums increased 2.6 percent in 2009).
The number of people enrolled in Medicare Advantage plans increased 5.6 percent in 2010 (they increased 10.5 percent in 2009).
Total federal and state Medicaid spending accounted for 15 percent of national health care spending in 2010, reaching $401.4 billion – a growth rate of 7.2 percent.
Medicare spending grew 5 percent in 2010 to $524.6 billion (it had growth of 7 percent in 2009).
Hospital spending increased 4.9 percent to $8.14 billion in 2010 (it increased 6.4 percent in 2009).
Spending on physician and clinical services increased 2.5 percent in 2010, to $515.5 billion (down from 3.3 percent growth in 2009. The drop reflects a decline in utilization).
Retail prescription drug spending grew 1.2 percent to $259.1 billion in 2010 (down from a 5.1 percent growth in 2009. This was driven by an increase in the use of generic drugs, the loss of patent protection for certain brand name drugs, fewer new drug introductions, slower growth in the volume of drugs consumed, and an increase in Medicaid prescription drug rebates).
Extend Health Inc., a health exchange company, hopes to raise around $75 million with an initial public offering (IPO) of stock, according to a registration statement filed with the U.S. Securities and Exchange Commission.
The company runs the ExtendRetiree program, a private health exchange that helps employers switch retirees from traditional group retiree health plans into individual Medicare Advantage, Medicare supplement and Medicare Part D prescription drug plans.
Instead of paying paying the full cost of the new individual Medicare coverage, or a fixed percentage of the cost, the employer pays a set amount for each retiree who switches, the company says. The platform makes use of defined contribution health plans and health reimbursement arrangements.
Clarifying Health is a blog about health insurance, health benefits, and everything else related to how Americans pay for medical expenses.
If you have any tips or suggestions for this blog, send an email to blog@ZaneBenefits.com and let us know. We always appreciate feedback
We also run a company called Zane Benefits where we're doing everything we can to help America out of the current healthcare mess.
If you want to learn more about how Zane Benefits helps companies with their benefits, or you're interested in working with us, visit the Zane Benefits website.
