Individual Health insurance is a form of private health care coverage in which an individual or family purchases an individual health insurance policy directly from an insurance company. When purchasing individual health insurance, the policyholder pays the entire premium out of his or her own pocket. Individual health insurance is the fastest growing form of U.S. health insurance. Today, most employer-sponsored health insurance products are available for purchase directly from an insurance company as an individual health insurance policy with similar benefits.
It is estimated that 35 million Americans get health insurance from individual health insurance polices.
How Individual Health Insurance is Priced
In most states, the cost of an individual health insurance policy is based on your age and your health at the time of application. Most people incorrectly think that individual health insurance costs more than employer-sponsored health insurance. However, in 45 states individual health insurance is available to healthy applicants for much less than a typical employer's plan. However, in 5 states (NY, NJ, MA, RI and ME), insurance companies are not allowed to offer individual health insurance policies at lower rates for healthy applicants.
Guaranteed-Issue Individual Health Insurance
The federal and state governments have put special mechanisms in place to ensure that these individuals can purchase an individual health insurance plan.
If an individual is unable to obtain individual health insurance due to a preexisting medical condition, they will become eligible for individual health insurance in one of the following ways:
- If the individual is federally HIPAA-eligible, he or she can purchase an individual health insurance plan through a mechanism provided by the State. When a company cancels its group health insurance plan, employees with pre-existing medical conditions often become federally HIPAA-eligible.
- If the individual is eligible for a state's risk pool, he or she can purchase individual health insurance through the states risk pool.
- If the individual has been uninsured for 6 months or more, he or she can purchase an individual health insurance plan through the federal risk pool (PCIP).
- As of September 23rd, 2010, an applicant cannot be denied individual health insurance due to pre-existing conditions if they are under the age of 19.
Tax Free Individual Health Insurance
If you are self-employed, you can deduct the cost of individual health insurance on Form 1040.
If you are employed, you can only take advantage of tax free individual health insurance if your employer offers a section 125 POP plan. Under these plans, employees are able to reimburse themselves for individual health insurance premiums tax free.
Employer Contributions to Individual Health Insurance
The federal government allows employers to reimburse employees, tax free, for individual health insurance costs using a defined contribution health plan. When reimbursing individual health insurance premiums, an employer must comply with HIPAA, ERISA, and IRS privacy and non-discrimination rules.
Can Employers Pay for Individual health insurance?
Some companies might want to pay directly for an employee's individual health insurance plan without utilizing an ERISA and HIPAA-compliant defined contribution health plan, but doing so may put the employer out of compliance with federal regulations and increase the employer's (and employee's) tax liability.
There are two major reasons an employer should never pay for its employees' individual health insurance plan:
- Federal Compliance Issues - Paying for individual health insurance causes the employer to "endorse" the individual health insurance plans
- Increased Tax Liability - Paying for individual health insurance without a tax-qualified defined contribution health plan causes the payments to become taxable to the employer and the employee
Learn more about individual health insurance in your state... at www.zanebenefits.com.