Health Care: Benefits Surprise

Group coverage too pricey? Individual policies are better than you think

Bryan Barnall has long prided himself on providing health insurance for the four employees of Printing Plus, his Lincoln (Neb.) commercial printer. Then his carrier upped his premiums by 50% two years in a row, and Barnall had to dump his group plan. But he didn't leave his employees in the lurch.

Barnall's workers now buy individual policies through his agent. Each pays $50 a month toward premiums; Barnall pays the rest and gives each employee $75 a month to put into a health savings account (HSA). Barnall deducts his entire outlay from his taxes. And he has cut the annual health-care costs for his $350,000 company in half, to about $12,000. "The change initially made my employees a bit nervous, but they're all happy now," says Barnall.

That's because as soon as his workers came to grips with the high deductibles most individual policies carry, they realized they were coming out just fine. A single worker typically pays about $70 a month for a policy with a $2,550 deductible. Because Barnall's staff are young and healthy, the money building up in their HSAs will likely cover their medical costs. What they don't use will earn interest.

Although Barnall is just one of a tiny fraction of small employers -- about 2%, according to experts -- that has switched to individual coverage, that number may soon rise. One reason is cost. Premiums on individual policies run about half those of group plans. And as of last year, all 50 states were required by federal law to offer coverage to the roughly 10% of Americans rejected by insurance companies because of their medical histories. Workers with serious illnesses will pay more than their colleagues, but business owners no longer have to worry that switching to individual plans will leave some employees uninsured. "Small firms can often work out an arrangement to give these [less healthy] workers a little extra and still do very well," says economist Paul Z. Pilzer, author of The New Health Insurance Solution: How to Get Cheaper, Better Coverage Without a Traditional Employer Plan. There is one giant gap: State insurance regulations prevent insurers from offering low-cost individual policies in New York, New Jersey, Maine, Massachusetts, New Hampshire, Rhode Island, and West Virginia.

Despite the perception that individual policies aren't as good as group plans, a recent study by America's Health Insurance Plans, an industry group in Washington, found little difference between them. "We used to think individual insurance was expensive and lousy, but our hypothesis turned out to be wrong," says Karen Ignagni, AHIP's president and CEO.

Employers making the switch can work with a carrier that provides individual policies, then subsidize the premiums. Or they can offer employees subsidies and let each one find a policy.

That's what Robert Sudbury has done for four years. Sudbury, CEO of Sudbury Transportation, a $5 million trucking company in Wichita, gives $300 a month to single employees, $400 to those with one dependent, and $500 to those with two or more dependents to cover their premiums. Those payments may rise if his employees face higher costs. But it will be Sudbury, not an insurance company, who decides how much his company spends each year on health care.

By Joshua Kendall

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