Individual policy cheaper than group?

December 4, 2007 5:59 AM

Why is my wife's individual health insurance policy cheaper than being on my group policy?

I work for a company of just under 100 people which puts us in the small business category with regards to health insurance. Per our insurance company, our organization is categorized as having a "normal" amount of claims. Last year, I looked at putting my wife on our plan and it would have cost me approximately $250 more per month to add her. We shopped around and were able to get her an individual policy with the same insurance provider with BETTER COVERAGE for $195/month.

While my wife is young (35) and healthy, it still does not make sense to me that she should be able to get a better and cheaper policy with the same provider (Anthem in VA) than she could get with my, albeit small, group.

We're looking at a 14% increase in rates for my company this coming year, so now I'm looking at getting my kids on her policy rather than carry them on mine.

I'm sure I'm just missing something, but could someone please enlighten me as to why she gets cheaper coverage than my group?

As always, thanks for any info you can provide.

posted by MrToad to health & fitness (11 comments total)

Individual policies are risky because the insurance company can dump your account and jack up rates at any time, whereas the group policy is more of a safety net. I am guessing the individual $195/mo is a teaser rate which goes way past $250 if you start making claims, whereas the group $250/mo is relatively fixed and is meant to subsidize a large number of claims among all the insured individuals.

I may be wrong, of course, but this is my understanding.
posted by chips ahoy at 6:09 AM on December 4, 2007

While chips ahoy may be right that the insurer can drop the individual policy (or change the rate) at any time, I highly doubt that the $195/mo is a teaser rate. Screwing around with rates means instability and unpredictability with regards to the finances of the company, which is the last thing an insurer wants. I'm in a situation very similar to yours (I get the group insurance at work but buy an independent policy for my wife/kids because its staggeringly less expensive), and I've never had the rates change except on Jan 1. If your wife racks up $10k in claims in three months, however, you'll probably get dropped.

I could be completely wrong about this, but I think the group policy at your work has to provide insurance to anyone that wants it. My understanding is that if you want insurance then you get the insurance. With the individual policy, Anthem gets to decide whether you are worth the risk. The extra money for the group policy probably goes to cover this extra exposure to risk from allowing anyone to get coverage.
posted by wabashbdw at 7:05 AM on December 4, 2007

Your company is charging you a lot of money for the extra coverage. My company - admittedly a very large well-known corporation with lots of negotiation clout - offers a variety of plans from high deductible to "covers almost everything", and the cost of adding a spouse varies from between $30 and $90. For $250, I could insure myself, my spouse and five kids on the "covers almost everything" plan. On the other hand, the individual insurance your wife has seems in line with prices i have seen for $2K deductible, 20% copay plans. So the plan is probably OK, it's your company (or their carrier) that is trying to discourage you from adding your wife.
posted by ubiquity at 7:41 AM on December 4, 2007

Couple of thoughts:

1. When you say the extra cost of adding your wife was more expensive than getting her individual insurance--does your company increase insurance premiums by a set amount for each person added in your family, or are there two or three options for coverage (single, single + 1, and family)? Many workplaces offer single person plans (only the employee) or family plans (employee, spouse, and all children), so the family plan is something like 3 times the cost of a single plan, since it covers more people.

2. Are you absolutely sure both offer the same level of coverage? Does either one have a lifetime limit, and if they both do, is the lifetime limit the same? (Unlimited vs. $1 million lifetime limit seems like the same thing until you get hit by a bus and realize $1 million is chump change in the ICU.) Sometimes even if deductibles, copays, and lifetime limits are the same, one plan may cover more procedures than another, or have a wider network.

3. Did your wife buy a guaranteed-renewable plan with Anthem, or did she buy a short-term policy (around 6 months long and not guaranteed-renewable)? In contrast to what chips-ahoy says above, in Virginia any policy that isn't a short-term policy must be guaranteed-renewable. That means that if you get very sick and make a lot of claims, your insurance company can jack up your premiums, but as long as you continue to pay they can't drop you. Also, in Virginia both Anthem and Carefree BCBS are guaranteed-issue, which means they must sell to any individual who applies for a policy (although they can charge whatever they like). You can find out more about the laws governing individual and small group insurance in Virginia here.

If none of the above are applicable, it's probably just that small group rates aren't consistently better than individual rates in the same way that large group (usually 50+ employees) are better than individual rates. If you've got a higher proportion of older individuals or sicker-than-average individuals, or your workplace isn't filled with cheap 20 year olds who never go to the doctor, it just might be a more expensive rate for your particular small group. Luck of the draw with the composition of your particular workplace, unfortunately.
posted by iminurmefi at 9:08 AM on December 4, 2007

BTW, I don't have a spouse and five kids. I don't even have a spouse. But if I did, it wouldn't cost much for me to add them to my insurance.
posted by ubiquity at 11:01 AM on December 4, 2007

Don't blame the company for the cost. The group plan my organization has costs us $384 to insure a single and $846 to insure a couple.... $250 difference is a bargain....!

ubiquity...I would LOVE to know what insurance company you have, although I'm guessing that you're quoting YOUR cost, not the company's cost for the coverage.
posted by HuronBob at 12:05 PM on December 4, 2007

oh, definitely quoting my cost. It's a benefit, I know my company is paying some for me, and less for spouses and children. The carrier varies depending on where you live, but right now I have Blue Cross/Blue Shield.
posted by ubiquity at 12:30 PM on December 4, 2007

I'm in a similar situation and have found that an individual plan seems to offer me a much better deal than the group plan. I'm nervous about going off on my own (group: Empire/individual: Atlantis) and regretting it.
posted by annabellee at 1:44 PM on December 4, 2007

Employer-provided health insurance is tax-deductible, while individually-purchased health insurance is not. This is like a government subsidy for employer-provided insurance. If you don't remember from Econ 101 what subsidies do to prices, suffice it to say it makes them go up.
posted by Dec One at 4:00 PM on December 4, 2007

Health insurance is, as far as I know, tax-deductible for the self-employed.
posted by annabellee at 9:24 AM on December 5, 2007

Individual policies for relatively healthy people are consistently more expensive than covering the same individual on a company-sponsored group health insurance plan.

The reason is simple, and aluded to above, I think...insurance companies HAVE to offer coverage to everyone in the group plan, regardless of an individual's medical history. So group policies invariably have higher expenses, because there's a greater percentage of sick, high-risk, and chronically ill people on group plans. Individuals with those conditions either can't get, or can't afford, individual coverage.

Also, a factor no one has mentioned is that as a small business, your rates may be age banded...based on the employee, not the spouse's age. If employee is older than spouse being added to the plan, the rate is based on employee's age, not on spouse's age.
posted by quinoa at 5:25 PM on December 5, 2007