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Insurance Basics: Individual vs. Group Insurance

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There are key differences between individual and group insurance plans. Individual health insurance plans were designed to provide insurance to unemployed or self-employed persons not covered under their employer's plan. In some cases, individual insurance can be difficult to obtain at any price. People with pre-existing, previously diagnosed, or treated health problems seeking new health insurance policies are considered high-risk by insurance companies, and may be unable to find affordable health insurance or any health insurance at all.

On the other hand, group insurance plans, which provide coverage for two or more individuals, cannot single out high-risk individuals; nor can they deny them health coverage. All individuals are covered regardless of their existing health problems, and high-risk individuals are factored into the total cost of the group plan.

The plan descriptions that follow outline the types of individual and group insurance plans widely available today.

Individual insurance. Since group insurance is so prevalent and lucrative, fewer and fewer carriers offer individual insurance. Individuals can purchase health insurance on their own, but it's usually very costly. It's estimated that 46 million Americans don't have health insurance.

Indemnity plans. With these pay-as-you-go plans, individuals pay a set deductible and a percentage of covered expenses. After a predetermined out-of-pocket amount is reached, the health plan pays further expenses. Participants with indemnity and other fee-for-service plans are free to use any doctor or hospital they choose, and then file claims for reimbursement.

Medical savings accounts. Individuals with medical savings accounts (MSAs) create tax-free trusts to pay for out-of-pocket health care costs such as medical bills and deductibles. With an MSA, people can reduce their monthly insurance premiums. They use the funds in their MSA to pay small medical bills, and rely on health insurance to cover large bills and catastrophic events.

Managed care plans for indivduals. Individuals can also purchase health maintenance organization (HMO) or preferred provider organization (PPO) health insurance directly from the carrier.

Group Insurance. Although Census Bureau data indicates fewer people are obtaining coverage through their places of business, most Americans with private insurance obtain their coverage through group plans. Typical benefit plans cover a combination of disability income programs, plus health, dental, vision, life, and accidental death and dismemberment insurance. Other types of insurance coverage include short-term disability, long-term disability, prescription drug, long-term care, and dependent-care.

Managed care. Managed care plans offer participants financial incentives — typically in the form of coinsurance (lower out-of-pocket co-pays) — to use doctors and hospitals within the managed care network. The doctors and hospitals, or medical providers within a managed care network, agree to limit their fees in return for a guaranteed number of patients. HMOs and PPOs are the two most common types of managed care plans.

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