Debating the wisdom of the Affordable Care Act (ACA) during the first Obama term did at least one good thing: it made average consumers more aware of how health insurance is bought and sold. The debate offered a lot of people their first introduction to the group and individual marketplaces. Who knew there were two different markets before we started the national discussion some 15 years ago?
Group and individual marketplaces still exist today. Not much has changed with the exception of federal exchanges being added to the individual market. But other than that, the two markets continue on as they have for decades. Whether you are an aspiring insurance broker or a consumer who buys insurance, it is helpful to know the differences in the two markets.
1. Who They Target
The biggest difference between the markets is who they target. Everything else flows from there. Assuming you get your health insurance through your employer, you are part of the group market.
BenefitMall, a Dallas general agency representing more than 100 carriers, explains that the vast majority of health insurance benefits are offered through employers and their group plans. A group plan is a plan that groups together workers from multiple companies in order to take advantage of shared responsibility. Chances are that your particular group has thousands of subscribers.
By contrast, the individual market deals with individual consumers who buy insurance on their own. These are people whose employers either do not offer insurance or offer a plan that their employees don’t really like. For the record, the most visible consequences of the ACA’s implementation are seen in the individual market.
2. How Policies Are Sold
Group health insurance is rarely sold directly to employers by carriers. Instead, BenefitMall says carriers work through benefits brokers. In turn, benefits brokers can go it alone or operate under the umbrella of a general agency. Regardless of the setup, an insurance plan goes through at least one intermediary on its way from carrier to employer.
Even the employer acts as an intermediary of sorts. Think of your own situation. If you have health insurance through your employer, you rarely deal with your insurance company directly. You enroll through your employer. You pay your annual premiums through payroll deductions.
The individual market is just the opposite. Consumers contact agents or carriers to buy their policies. They pay those agents or carriers directly. Consumers tend to deal more often with their insurance carriers when problems arise.
3. How Rates Are Sent
Another significant difference in the two markets is found in how rates are set. The group market tends to offer lower premiums because financial risk is spread out among thousands of subscribers. Insurance carriers collect reams of data on individual groups so as to analyze how they use their benefits. They compare that to risk and set rates accordingly.
In the individual market, there are fewer subscribers to share the financial burden. There is also less data carriers can analyze to help them understand risk. Unfortunately, this dictates that health insurance is almost always more expensive on the individual market – and significantly so.
Incidentally, that’s why federal health insurance exchanges were introduced. They are designed to make premiums on the individual market more affordable. Sometimes they do, other times they don’t.
There are still more differences between the group and individual markets. However, what you have learned from this post should make it clear that all health insurance policies are not the same. Nor are the two markets through which consumers get their policies. Knowing the differences makes for a more informed consumer.
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