# Thursday, January 31, 2013
Many companies offer their workers group insurance, otherwise known as "employee benefits". This type of insurance normally comes with health, dental and drug benefits, as well as life insurance and long term disability (LTD) coverage.

However, smaller sized companies may not be able to afford a standard employee benefits package. Employee benefits offer extensive coverage for a wide variety of things, and as a result the cost of premiums may be outside of smaller budgets. In addition, group insurance premiums are routinely adjusted based on how many claims are made by employees. As a result, companies that make many claims may see their premiums increase to the point of being difficult to afford.

Most people do not realize that there is a cost-effective alternative to traditional group insurance. Individual health insurance (also known as "personal health insurance" or "family health insurance") is often cheaper than employee benefits, and can be used to offer workers/employees health and dental coverage that is affordable.

What are Employee Benefits?

Traditional employee benefits consist of the following types of coverage (many of which are optional):
  • Health benefits: vision care, travel medical, hospitalization, paramedical services (e.g. chiropractors, physiotherapists, etc.)
  • Prescription drug coverage (often unlimited coverage).
  • Dental benefits: basic services, preventative services, major dental (e.g. crowns and inlays) and orthodontics (e.g. braces)
  • Life insurance (coverage lasts as long as worker is employed by company)
  • Weekly income replacement (due to accident or illness on a short-term basis)
  • Long term disability
With employee benefits all employees are lumped together in one plan, with no medical underwriting. (Underwriting is a process where the insurance company looks at an applicant’s medical history. For people with a history of medical issues, an application can be either rejected out of hand, or a counter-offer is made whereby the pre-existing condition is excluded from coverage.)

Other important aspects about group insurance:
  • Premiums are routinely increased based on the amount of claims made.
  • Group life insurance coverage is dependent on continued employment. If an employee is no longer with that company than benefits are terminated. However, all group life insurance plans are convertible (e.g. can be converted to an individual life plan after employment ceases).
  • Coverage can be up to 100%, depending on the plan.
  • Premiums are paid by either the company or the company along with the employee (typically employers must pay at least 50% of the premiums).
  • Premiums are subject to retail sales tax.
Employee benefits premiums vary. A standard, run-of-the-mill plan costs roughly $150 for each single employee, and about $300 for each family that is covered. As previously mentioned however, these costs will increase on an annual basis if there are many claims made.

What is Personal Health Insurance?

Personal health insurance differs from group insurance in that it is applied to either an individual or couple/family.

Most individual health plans offer the following benefits (many of which are optional):
  • Health benefits: vision care, travel medical, hospitalization, paramedical services (e.g. chiropractors, physiotherapists, etc.)
  • Dental benefits: basic services, preventative services, orthodontics and major dental (e.g. crowns and inlays, usually available starting the third year of coverage).
  • Travel medical coverage (often up to 15 days of travel maximum)
  • AD&D (accidental death and dismemberment)
  • Catastrophic coverage (typically 100% drug coverage and increased homecare, nursing and durable medical equipment)
Most individual health insurance plans are medically underwritten, in which case pre-existing conditions are not covered. However, there are personal health plans that are guaranteed issue (e.g. no medical questions) which will cover pre-existing conditions.

In addition, some personal health insurance policies do not pro-rate insured persons. This means that premiums will not be increased on a case-by-case basis. Rather, people are lumped into one pool (similar to employee benefits) and any premium increase is applied to everyone across the board. This is good news for people that make claims, since their premiums will not go up accordingly.

The cost of a personal health insurance plan varies. On average, a standard plan for one person ranges from $70/month to $150/month (depending on age and province of residence). A similar plan for a family ranges from $150/month to $300/month.

Note that unlike employee benefits, personal health insurance premiums are NOT subject to retail sales tax.

Comparison of Employee Benefits and Personal Health Plans

The following table offers a summary comparison of individual health insurance versus employee benefits:

  Personal Health Insurance Employee Benefits
Length of coverage? In force for as long as premiums are paid Ceases when employment ends*
Cost? Low - medium Medium - high
Premiums increase with use? Depends on plan Yes
Sales tax? No Yes
Amount of coverage? Low - medium Medium - high
Medical questions? Depends on plan No
Life insurance? No Sometimes

* There are special personal health insurance plans that are designed for people who have just lost their employee benefits coverage (known as conversion plans). A good example is FollowMe™ from Manulife. Note that an application must be received within 60 days of losing group coverage.

Generally speaking, individual health insurance plans offer less coverage compared to many employee benefits plans. However, this is influenced by a wide variety of factors and varies between carriers and plans. On the other hand, oftentimes personal health plans are cheaper than employee benefits when costs are divided by employees.

Another important point to note is that individual health plans such as Manulife’s Flexcare or Blue Cross’s Blue Vision (Express) never single people out for premium increases due to lots of claims being made. Being lumped into one pool spreads risk out among all insured people. This can be a problem with employee benefits, which will result in higher premiums if lots of claims are made.

When looking for individual health insurance one must be aware of how pre-existing conditions are handled. If a person is relatively healthy with no major health conditions than a medically underwritten plan is the best option. For people that do have pre-existing conditions there are two options:
  1. Try to get a medically underwritten plan, in which case pre-existing conditions will not be covered, OR:
  2. Apply for a guaranteed issue health plan. Guaranteed health plans offer slightly less coverage, but pre-existing conditions (and associated prescription drug costs) will then be covered.

Conclusion

Personal health insurance is a relatively affordable alternative to standard employee benefits plans. In fact, a guaranteed issue health plan such as a Flexcare ComboPlus Starter does not ask any medical questions, and coverage is available starting from $70/month.

Health, dental and drug coverage is something that all potential employees look at when considering one or more job offers. Small businesses should especially consider offering health and dental benefits via affordable individual health plans.