Understanding Group Health Insurance for Small Businesses
Generally, small group – health insurance plans are less costly per person when compared to individual plans. Small businesses are waking up to the fact that they can save considerably on per-individual costs by opting for group plans that cover all employees under a single policy.
We’ll take a look at the key difference between these popular health insurance packages in the United States. We hope this will help you understand what the best affordable coverage is for your particular health insurance purposes.
The Two Major Types of Coverage
The terms “individual health insurance” and “group health insurance” themselves make it pretty clear what they stand for.
Individual Health Insurance is the coverage is purchased privately by a single person for themselves or their families. It is common for some to mistake the “individual” in “individual health insurance” to mean a single person, while this coverage can cover more than one person (the entire immediate family.)
Group Health Insurance is coverage designed specifically for organizations to cover their employees. These plans too can be purchased on the open market similar to individual plans, as a self insured plan offered by the company (mostly larger organizations) or as a combination of the two.
The Key Difference – Comparing Costs
Individual health insurance is in general cheaper than group health insurance across most states in the US. There are several reasons why small group health insurance is less expensive per individual than personal plans.
Employer contributions: In the case of an employee, the major reason for affordability of group plans is the contribution made by the employer which generally covers at least half of the premium.
Tax benefits: In addition to employer contributions, employees usually pay their part of the premium from pre-tax money, which can result in significant savings.
If you are an owner of a small business, there are perks in providing small business group health insurance to your employees! While you will likely bear least 50% of the premiums for your employees, you will also be able to claim these costs as tax deductions for your business. In certain cases, you may even be eligible for special tax credits.
The Collective Advantage: The theoretical spread of risk across a group is the basic theory of insurance. The relatively higher cost attributable to one insured individual is reduced significantly when in a larger pool. Or in other words, the contributions of more people will subsidize the cost for the actual few who end up utilizing the benefits of coverage.
Of course, there can also be several other reasons why particular plans may cost less or more, as costs can differ based on the specifics of the plan. Most group insurance plans will not readily cover any pre existing conditions from day one. Normally, there is a specified waiting period before such conditions are admissible. This can be crucial in instances where you have no pre-existing insurance coverage.
The Taxation Aspect
In addition to employer contributions, employees also (usually) pay for their share of the premium with pre-tax money. This can add up to significant savings and benefit the employees even more.
Similar tax benefits await the employers as well. While an employer will likely have to bear at least half of the monthly premiums for the employees, it is possible to deduct these costs from your business taxes. What’s more, in some cases you may also be eligible for special tax credits.
Read the Fine Print
It’s always recommended to check the insurance coverage in detail before enrolling in any group health plan. You need to be aware that each and every health insurance plan comes with its own terms and limitations, so it’s is very important that you check the official plan documentation to understand the intricacies of the specific plan.
Most important of all, ensure that you understand all the costs and covered services. Be sure to do your homework diligently and compare plans from different providers to find the health insurance plan that best suits your requirements. A licensed insurance broker will be able to list the pros and cons of different plans and help you put in place a suitable group health insurance plan that suits your small business.
James Eckardt is the founder of Peak Advisors Inc., a boutique insurance brokerage on Long Island, NY. The firm has a stellar record of service with three decades of experience in health insurance coverage and hundreds of clients including small businesses, commercial enterprises, sole proprietor-ships and seniors.