Many small business owners offer their employees health insurance through a group plan. It's the way things have been done for a long time in the United States. But lately, more and more employers are switching to individual plans for themselves and their employees.
Here's a look at what industry experts are saying about the shift to individual health insurance.
Most Employers Will Stop Offering Health Insurance in the Next Decade
Dr. Ezekiel J. Emanuel, in his recently published book, “Reinventing American Health Care,” predicts that by 2025, “fewer than 20% of workers in the private sector will receive traditional employer-sponsored health insurance."
S&P Capital IQ, a division of McGraw Hill Financial, came to a similar conclusion. They predict that by 2020, 90% of American employees who currently receive health insurance through their employers could be shifted to individual health insurance and government Exchanges.
In a recent Whitepaper we discussed how the shift will first start with small businesses, predicting that 60% of small businesses will eliminate traditional employer-sponsored health insurance in favor of Defined Contribution arrangements and individual health plans by 2017. With Defined Contribution arrangements, the employer reimburses employees for their individual health insurance premiums. There are pre-tax and post-tax options for employers to contribute to employees' premium expenses.
Why are Small Businesses Shifting to Individual Health Insurance?
One of the primary reasons small businesses are canceling group health insurance in favor of individual health insurance and Defined Contribution is that individual health insurance costs up to 60% less. See this state by state comparison of rates.
On top of this, most employees are eligible for a premium tax credit to lower what they will pay for individual health insurance. A recent analysis found that those who are eligible for tax credits pay, on average, only $82/month for a Marketplace health plan.
Lastly, individual health insurance is now better for employees because they get more choices, the coverage is portable, and all employees (regardless of health conditions) are able to purchase an individual health insurance policy that is equal or better for them than existing group health insurance options.
Why are Small Businesses Still Offering Group Health Insurance?
As many industry leaders are concluding, there is no longer a good reason for small businesses to offer traditional group health insurance.
The cost of group health insurance is on an unsustainable trajectory, and individual health insurance policies provide greater value to employees. Individual health insurance costs up to 60% less than group health insurance, and Defined Contribution arrangements allow employers to reimburse employees for individual health insurance costs.
So, why are small businesses still offering group health insurance?