Monday, November 17, 2008

What Is Individual/Family Health Insurance?

An individual or family health insurance policy is a policy purchased from an insurance company or government entity covering a single individual or selected family members.

The terms individual policy, family policy, individual and family policy, individual/family policy, and individual or family policy all mean the same thing—a policy purchased by a consumer directly from an insurance carrier (similarly to auto insurance) covering an individual or a family. (The terms policy, plan, company, and carrier are also used interchangeably and mean the same thing.)

There are two main differences between employer-sponsored “group policies” and individual or family policies:
  1. Employers and their group-policy insurance carriers are legally required to accept all applicants regardless of their health. In contrast, insurance carriers offering individual
    policies can reject applicants with preexisting medical problems, and therefore can typically offer far lower rates to healthy applicants (except in five states).
  2. The premium paid by employers for their group policies is typically increased every year based on the previous year’s healthcare costs of the employee group. In contrast, the premium you pay for an individual or a family policy cannot be raised each year, nor can the policy be canceled based on your health or your prior year healthcare costs.

When you purchase an individual health insurance policy, you become a member of an insurance “group.” But it’s not the relatively small group limited to the employees of one company—it’s the large group of people in your state who purchased a similar policy from the carrier in a given time frame.

Monthly premiums paid for individual policies typically increase annually with the level of inflation or overall medical costs. The insurance carrier is allowed to ask the state insurance regulator for a rate increase based on the actual prior year’s health costs for everyone in your group.

However, unlike with employer group policies, these groups of individuals are so large that even the catastrophic illness of hundreds of members would not result in a significant increase in your monthly premium. In contrast, in a small company, if one of the employees gets an extremely expensive illness like diabetes or cancer, the following year the carrier could double the cost that employer is paying for health insurance.

Many companies are forced to pass increased costs on to employees or drop health insurance coverage because of catastrophic employee illnesses. Huge, sudden increases in health insurance costs can’t happen with individual/family health insurance because your “group” is so much larger.

Unlike employer-sponsored health insurance, individual and family health insurance is real “insurance” because it “guarantees protection or safety.” As long as you pay the premium, your policy cannot be canceled nor the premiums increased just because you lose your job, change jobs, or have a catastrophic illness in your family.
As with employer-sponsored health insurance, individual or family health insurance also includes access to a network of medical providers who charge 15 to 90 percent less to those in the network than to those outside the network, or to those who have no health insurance.

1 comment:

  1. I enjoyed reading this article. I must say that you have very well explained the meaning of individual/family health insurance policy. Thanks for this detail.
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