Individual Insurance

Overview

Between six and seven percent of the population has individual medical insurance. Unlike group medical insurance, which is a contract between a company and an insurance carrier, individual medical insurance is a contract between a person and an insurance carrier. Individual health insurance is state regulated and can vary dramatically in costs and benefit levels between states.

The Council for Affordable Health Insurance published a report called “State Health Insurance Index 2006: A 50-State Comparison of the Nation’s Health Insurance Market.” This study provides information on the individual health insurance markets in every state and offers extensive analysis of the relative effectiveness of each state market.

Medical underwriting in the individual market

Unlike group medical insurance, most individual health insurance is individually medically underwritten, meaning people must answer questions about their health when applying for coverage. Depending on the state, people can be denied individual health insurance coverage if they have or have had certain medical conditions. Typically states have high risk pools where people denied individual health insurance can still buy coverage.

Tax limitations of individual health insurance

Another major difference between group medical insurance and individual medical insurance is group medical insurance offers tax benefits that generally cannot be applied to individual health insurance. With group insurance, companies can deduct the amount they pay for their employees’ health insurance, and contributions are not included in employee payroll, so neither payroll nor income taxes are paid on group medical insurance. The Henry J. Kaiser Family Foundation published a brief entitled “Tax Subsidies for Health Insurance” that explains the affects of these tax advantages.

Individual health insurance though is generally neither tax exempt nor tax deductible; unless the premiums are reimbursed through an employer sponsored Health Reimbursement Arrangement (HRA).

Next, learn about the uninsured.