As I was meeting a business owner a couple of weeks ago, we had a discussion of whatever he should provide a “Group Benefits Plan” or “Individual Health & Dental Plan” to his employees. Both plans have their own features, pros and cons. To have a better understanding, let’s go through the differences between both plans.
Plan design of traditional group benefits plans is very customizable. There are many options you could choose to tailor your needs. For example, you could choose how much co-insurances or deductibles are set on the medical coverage, how much life insurance, disability insurance or critical illness insurance is to be offered for each class of employees. You could even decide what the claim procedures will be. Will you provide your employees with drug cards? Or will they recoup their medical expenses in the form of reimbursements?
On the other hand, individual health and dental plans does not have as much varieties as the group’s. It is like going into McDonald’s where the combo meals are already pre-set. Your choices are just a matter of picking which combo plan.
Structure of the plan
I found that it could be easier to maintain records for group benefits plans. There will be only one policy, in which it has only one effective date and one premium payment for each month is required. Since company owns the policy, employers could find out what is the claim ratio, then further improve the plan design with their employee benefits consultant.
Whereas for individual health and dental plans, there will be one policy for each employee. The effective date for each policy could be different as well. Employees will own the policy. Should they decide to terminate employment from the firm, they have the options to continue having the same coverage without medical underwriting. Of course, by then the employees would be responsible for their own premium payments.
For most of the group benefits plans, they do not require any underwriting when there are five or more applicants. Therefore, every employees from the same class could enjoy the same coverage regardless of their health conditions.
Individual health and dental plans usually requires medical underwriting, where insurance companies would ask each individual applicants to fill out a medical questionnaire. As a result, there are chances where some employees are approved, while some are declined or provide with alternative types of coverage. If business owners is concerned about the discrimination problems, there are some plans with basic coverages that do not require medical underwriting.
Group benefits plan tend to look at the claim ratio for each individual company. Claim ratio does play a huge factor in determining the renewal premiums. Therefore, for smaller-sized companies, large amount of claims from just a couple of employees could impact the pricing.
As for “Individual Health & Dental” plan, insurance companies would look at the claim ratio for all the applicants of the plan, not just for your company. In such a large pool of applicants, the risk of premium increase due to your company’s high claim ratio would be significantly reduced.