Individual Health Insurance May Save You Money

How to Find an Individual Health Insurance Plan

Private health insurance may save you money!. tazytaz/iStockphoto

For some consumers, buying individual health insurance is the only health coverage option. However, even if you have health insurance from your employer, an individual/family health insurance policy may still be an option to save money. With health insurance premiums increasing every year and employers passing more of the costs onto their employees, your company's health insurance may not be the best deal, especially if you need to cover a family.

According to a Kaiser Family Foundation analysis, in 2018, the average American worker with employer-sponsored health insurance contributed $1,186 for a single employee health plan and $5,547 for a family health plan. Since this is an average, some employees may be paying much more (employers paid the bulk of the total premiums, which averaged $6,896 for single employees and $19,616 for family coverage).

Shop Online for a Better Health Insurance Premium

If the coverage available through your employer feels unaffordable, you can shop around online to see what's available. You may be able to find an individual market policy that will provide you with the coverage you need but is less expensive than the premium you pay at work. This is unlikely to be the case if your plan only covers yourself, since your employer is likely subsidizing a good chunk of the total premiums for the plan offered through your job. But some employer-sponsored plans require the employee to cover the full cost of adding family members, so it's possible that your family members could get a better deal with a separate policy.

A good place to start is HealthCare.gov. This is the health insurance exchange created by the The Patient Protection and Affordable Care Act, and is a one-stop shop for private individual market health insurance plans (note that the exchange itself is run by the government, but the health plans for sale in the exchange are all private, from the health insurance companies with which you're already familiar). People in 39 states use HealthCare.gov to enroll in individual market plans. The other 11 states and the District of Columbia have state-run exchanges, and you'll be directed to their sites from HealthCare.gov when you select your state.

There are premium subsidies available in the exchange, but you're not eligible for them if the plan offered by your employer is considered affordable and provides minimum value (this is true for your family members as well, if they have access to your employer-sponsored plan, even if the employer-sponsored plan is only affordable for the employee's portion of the coverage; this is known as the family glitch). Most employer-sponsored plans are affordable and do provide minimum value. So if you're shopping for an individual market plan instead, chances are high that you'll have to pay full price for it, without any subsidies.

There are other online brokerages, both large and small, that can help you sort out the individual market health insurance options available in your area. Most of them can show you plans that are available in the exchange as well as options that are only available outside the exchange (no subsidies are available outside the exchange, but as noted above, you're probably not eligible for subsidies anyway, if you have access to an employer-sponsored plan).

Note that all individual market plans, regardless of whether they're sold in the exchange or not, have an annual open enrollment window. If you're shopping outside of open enrollment, you'll need to have a qualifying event in order to enroll.

There are other plans available year-round that are not individual major medical coverage. Most of these plans are not recommended as stand-alone coverage (with the exception of short-term plans, which can be adequate stand-alone coverage if you're healthy and you know that you need the coverage for only a short time; they are usually not at all adequate for longer-term coverage). These plans are not regulated by the Affordable Care Act, which means they can exclude pre-existing conditions, impose dollar caps on your coverage, and don't have to cover the ACA's essential health benefits. In most cases, these plans cannot really be compared with an employer-sponsored plan, since the coverage will be so much lower quality. If an insurance offer sounds too good to be true, read the fine print carefully. It may end up being a poor substitute for real health insurance, and you don't want to learn those details after you have a major claim.

How Buying an Individual/Family Plan May Help

Among workers at small companies (up to 199 employees) who have family health insurance coverage, 34 percent pay more than half of their total family health insurance premium as a payroll deduction (with the employer paying the remainder).

Since the average premium for a family is more than $19,000, many employees are paying more than $9,500 per year to cover themselves and their families. Some of these employees may do better buying their own insurance. For example:

Doug Jones works for a small company that offers a PPO health insurance plan (with a yearly deductible of $1500) for employees and their family. Because of the recent downturn in the economy, Doug's company increased his share of the family monthly premium to 60%, which costs Doug almost $950 each month.
Doug's wife works part-time as a librarian and has no health insurance benefit. The Joneses have two children ages 7 and 10. All four family members are in good health and have a healthy lifestyle.

In most states, prior to 2014, Doug might have found the medically underwritten coverage in the individual health insurance market to be much less expensive than his job-based plan. But the ACA banned health insurance companies from considering applicants' medical history when setting prices and determining eligibility for coverage.

As a result, the difference in price between individual/family plans and employer-sponsored plans has narrowed. Individual market plans are more expensive than they used to be, although for many enrollees, premium subsidies (premium tax credits) offset much of the premium, making coverage affordable.

Unfortunately for Doug, he and his family almost certainly aren't eligible for premium subsidies. As long as Doug's own coverage (without his family) is considered affordable and provides minimum value, he and his family are ineligible for subsidies.

However, they might still be able to find a less expensive plan in the individual/family market, even paying full price for the premiums. It would almost certainly have a higher deductible and out-of-pocket exposure than the plan Doug's employer offers, but that might be a trade-off that the family considers worthwhile. Doug might find that his employer-sponsored coverage for just himself is very affordable, since employers often pay more towards the employee's premiums than they pay towards additional family members' premiums. So Doug's family might opt to keep Doug on the employer-sponsored plan and get an individual market plan for his wife and kids.

But it's also worth noting that if they keep the employer-sponsored plan for the whole family, the premiums will almost certainly be payroll deducted on the pre-tax basis. On the other hand, if they opt to buy an individual market plan, the premiums would only be tax deductible to the extent that they (along with other medical expenses) exceed 10 percent of the family's household income, and assuming that the family opts to itemize their tax deductions (increasingly rare now that the Tax Cuts and Jobs Act has greatly increased the standard deduction).

Understand Your Options; Read the Fine Print

If you're eligible to enroll in an individual/family plan (either during open enrollment or as a result of a qualifying event) and you want to make the switch, make sure that you fully understand the benefits and limitations of the individual plan compared to your employer-based plan.

How do the benefits differ? What would you owe in out-of-pocket costs if you were to be injured or get seriously ill? How does that compare with your out-of-pocket exposure on the employer-sponsored plan? Are your doctors in the network of the individual plan? You'll want to carefully consider all of these things before switching, and keep in mind that you won't be able to rejoin your employer's plan until the next open enrollment window offered by your employer.

If you apply for individual health insurance, do not cancel any health insurance coverage you currently have until you receive an approval letter and insurance policy, or contract from the health plan you selected.

Before you make any commitment, carefully review the new insurance policy.

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