We are at the beginning of a paradigm shift in the way businesses offer employee health benefits and the way Americans get health insurance—a shift from an employer-driven defined benefit model to an individual-driven defined contribution model. This parallels a similar shift in employer-provided benefits that took place two to three decades ago from defined benefit to defined contribution retirement plans.
“It no longer makes financial, legal, or social sense for any U.S. employer to continue providing health insurance to its employees,” says Rick Lindquist, who along with Paul Zane Pilzer coauthored The End of Employer-Provided Health Insurance: Why It’s Good for You, Your Family, and Your Company.
Since 2000, the percentage of Americans covered by employer-provided health insurance has declined annually. “This trend is indicative of a shift that’s only going to accelerate,” say Lindquist and Pilzer. But it is not the end of the world. Why? Because in the face of the rising cost of providing group health insurance, the Affordable Care Act has made it easier and cheaper for most individuals to buy their own insurance.
“Many business owners will replace their group policy with a defined contribution plan that offers a stipend to employees to buy the health insurance that best suits them in the Health Insurance Marketplace,” says Lindquist. “Everyone wins.”
Here are seven reasons why individual health insurance is a better deal for employees:
It’s customizable. The old style group plans forced employees into a rigid, “one-size-fits-all” box. With individual health insurance, they don’t have to settle for that. Each employee can choose a plan with features—premiums, deductibles, provider networks, etc.—that make the most sense for the employee and his or her family. (This means you get to pick your doctors and hospitals!)
“If Joe wants to keep premiums low in return for accepting a higher deductible and more out-of-pocket costs, he can do that,” says Lindquist. “And if Sally prefers to pay more each month because her spouse requires lots of doctor visits and meds, that’s her choice.”
It’s far more affordable. Fact: On average, policies sold in the Health Insurance Marketplace are 20 to 60 percent less expensive than group plans. This is great news for employees who have had to pay a high percentage of their monthly premium. But it gets better: Most families earning less than $100,000 a year qualify for a monthly federal subsidy. This year, after-subsidy cost was about a quarter of the cost of comparable employer-provided coverage.
Consider these figures from the Kaiser 2013 Annual Employer Health Benefits Survey: The average cost of individual health insurance for an employee was $3,080 a year, and for a family it was $6,674 a year. By comparison, the cost for traditional employee health insurance was far higher: $5,884 for an employee and a whopping $16,351 for a family.
It’s stable. In a small company with a group plan, if one employee gets diabetes or cancer, insurance costs might very well double the next year. And if there are two catastrophic illnesses, you can imagine the financial fallout. The choice is usually this: Stick employees with huge premiums, cancel the insurance, or go out of business. This is not so with individual plans. Because employees are in much larger groups, prices rise far more slowly—and if the plan is subsidized, the cost can go up only if household income does, too.
It’s portable. In the past, your health insurance was linked to your job. If an employee wanted to change jobs—or had to change jobs—his or her health insurance changed too. And if the employee (or a covered family member) happened to get really sick, suddenly there was a preexisting condition to worry about. Thanks to Obamacare, that’s no longer the case. Now when an employee leaves, the health insurance goes with him or her.
It’s permanent. Employers can cancel their group insurance any time they like (and when they do, no COBRA is available). With individual health insurance, the employee controls the policy. As long as he pays the monthly premium, his coverage cannot be canceled for any reason.
It’s good for the company—which in turn is good for the employees. In the past, crippling health insurance costs have kept employers from hiring new talent. Now, that burden is lifted. Plus, leaders can focus on improving products and services rather than managing health insurance. All of this leads to healthier companies—which leads to happier employees who can stay employed.
Finally, it’s virtually mistake-proof. Shopping for individual policies is remarkably easy. Federal regulations require all health insurance plans on the exchange to meet a minimum level of coverage. Employees can work directly with an insurance agent if they don’t want to go to the exchanges themselves. Oh, and one more thing: “If an employee chooses a policy that doesn’t work as well for his or her family, the employee can correct the mistake during the next open enrollment,” says Lindquist.
Paul Zane Pilzer is the New York Times best-selling author of 11 books, a former professor at NYU, and has served as an economist in two White House administrations. He is also the founder of six companies including the two largest U.S. suppliers of personalized employee health benefits, Extend Health (1999) and Zane Benefits (2006).
Rick Lindquist is president of Zane Benefits, Inc., the U.S. leader in individual health insurance reimbursement for small businesses. Zane Benefits’ software has been featured on the front page of the Wall Street Journal, USA Today, and the New York Times. He is a regular contributor to leading health benefits publications, including ClarifyingHealth.com.
