Defined Contribution Employer Health Benefits

How much do personal policies cost?

Personal health insurance policy coverage now costs 1/6 to 1/2 the price of similar-benefit group 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 preexisting conditions.

Nationally, about 83% of the applicants for personal health policies from private insurance carriers, like Blue Cross Blue Shield, get accepted. But, federal law now requires all states to offer state-guaranteed personal policies (at higher cost) to applicants who used to have group coverage. See What if I don't medically qualify?

The price of personal health insurance policies vary between states primarily because each state has different minimum requirements for coverage. For example, Texas requires a minimum lifetime maximum benefit per person of $3 million while California requires $6 million.

There is no fair way to compare personal health policy coverage to group policy coverage because they are not "similar". Aside from offering similar health benefits from the same insurance carriers:

• Personal health coverage is far superior to group coverage for employees because it is permanent and portable, independent of their employment. Last year 1 million of the 2 million U.S. families filing for personal bankruptcy protection did so because of health expenses, and 80% (820,000) of these families had group coverage when they first became ill—coverage they lost when they were no longer able to come to work. Group employer health coverage is the greatest financial risk to American families-because you lose your health insurance if you retire early or become too ill to come to work.
• Personal health coverage is real insurance—the premium cannot be substantially increased because you become ill. In contrast, group coverage offers little or no insurance-the major illness of one employee in a small group could double the entire group cost or cause the entire policy to be cancelled.
• Group coverage is guaranteed-available at the same price to all eligible employees regardless of obesity, lifestyle, or preexisting conditions—that's why it is so expensive. However, when even a single employee or a member of their family has a major medical expense, the cost is borne by all the employees and their families through premium increases the following year.
• Nationally, less than 40% of the employees and dependents of small employers (50-99 employees) participate in a group plan. This 40% is often a self-selected group of less healthy individuals, particularly in companies that require employees to pay for spouses and dependents. The self-selection by unhealthy people is another reason why group policies increase in price each year so much more than general inflation, even for smaller employers with younger, healthier employees (because their group rate is pooled with other smaller employers in their state).
• In contrast, only 83% of applicants medically qualify for personal health policies, although this figure can vary between 60% and 100% based on the age and demographics of employees. Once accepted, rates do increase with the claims of everyone in your state with personal coverage, but from a much lower base price and from a carrier-selected much healthier group of individuals.

State-guaranteed personal coverage is expensive—most states charge more than the federal guideline of 200%-300% the price of similar private carrier coverage. However, the blended cost per family can still be less than similar group coverage, because families typically obtain state-guaranteed coverage for their one unhealthy member and much less expensive private carrier personal coverage for the rest of the family.