ASK KIM


Individual Health Insurance vs. Employee Coverage

Kimberly Lankford

Even though prices for employee health insurance have increased, you still will probably get a better deal from your employer than on your own.



The premiums for health insurance through my employer are going to jump a lot next year and the coverage isn't that great. Do you think I might find a better deal if I drop my employer's coverage and buy my own policy?

Prices for employee health insurance have increased significantly over the past few years, with the total premiums rising by 87% since 2000, according to the Kaiser Family Foundation. The average family plan cost $11,480 per year, or $4,242 for singles, in 2006.

But employee coverage has two big benefits you can't get with an individual plan: You generally can't get rejected because of your health, and most employers continue to subsidize a big chunk of the costs, covering 73% over the bill for family coverage, and 84% for singles. The average worker only pays, on average, $627 of the total bill of $4,242 per year for single coverage, or $2,973 of the total $11,480 for family coverage.

Individual insurance is generally less expensive than the total cost of employee coverage, if you're healthy and live in a state with a competitive health insurance marketplace (which includes most states other than New York, New Jersey and Massachusetts, which have very high individual health insurance prices). But if your employer has been subsidizing a big chunk of the bill, it may be tougher to find a better deal on your own. Many employers are having a tough time covering the costs themselves, however, and are shifting a much bigger share of the premium to their employees. So it wouldn't hurt to compare your options.

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To see what you could get on your own, you can shop for individual health insurance policies from several companies at eHealthInsurance.com. Or for personalized attention, you can find a health insurance agent in your area through the National Association of Health Underwriters. You also can find a list of companies offering health insurance in your area through your state insurance department (see our insurance page for links to the state regulators' Web sites).

If you are looking at individual plans, also make sure you're getting all the coverage you need; these plans may have exclusions and coverage limits that are different from your employer's plan. Compare total out-of-pocket costs for your expected medical expenses for the year -- and any caps on catastrophic costs -- rather than just looking at premiums. Employers have been raising rates for dependents a lot more than for employees, so also compare prices for staying on the policy yourself while buying a separate policy for your family.

And keep in mind that the price will be a lot higher for the individual plan if you have any medical conditions. Never drop your group policy before guaranteeing that you have coverage elsewhere, just in case it ends up being tougher to get the new policy than you were expecting.

Another way to lower your premiums is to increase your deductible. If your deductible is at least $1,100 for individual coverage in 2007, or $2,200 for families, you'll generally qualify to open a health savings account that lets you make tax-deductible contributions up to the size of the deductible (with a $2,850 maximum contribution for individual coverage, $5,650 for families in 2007) and gives you a stash of money to use tax free for medical expenses in any year. See Health Savings Account FAQs for more information.

Got a question? Ask Kim at askkim@kiplinger.com.




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