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Health insurance plays a vital role in ensuring access to quality healthcare for individuals and families. However, many self-employed people find themselves facing higher costs and limited coverage when seeking health insurance through individual or marketplace plans compared to those offered by large employers.
In this blog, we will explore the reasons behind this disparity, shed light on the factors that contribute to the cost differences and variations in coverage and give you some ideas on what to do about it.
TLDR; as an individual, you lack the size and bargaining power to be able to negotiate an affordable rate and comprehensive coverage. The best solution for self employed individuals in this situation is to either bite the bullet and pay the extra, or join a collective pool of workers to expand negotiation power - either through traditional employment or an alternative platform like 8x5.
One of the main reasons individual and marketplace health insurance plans tend to be more expensive is the difference in the risk pool size. Large employers often have a significant number of employees, which allows them to spread the risk of potential high healthcare costs across a larger pool. This lowers the overall cost for each individual covered by the plan. In contrast, individual and marketplace plans have a smaller risk pool, leading to higher per-person costs.
Big employers, due to their size, have substantial negotiating power with insurance providers. They can negotiate lower premiums and more comprehensive coverage for their employees. On the other hand, individual consumers or small businesses lack the bargaining power to secure the same advantageous rates. Consequently, they end up with plans that are costlier and may offer less extensive coverage.
The administrative costs of offering health insurance can be relatively high, especially for smaller groups. Large employers can spread these costs over a larger number of employees, which helps keep administrative expenses per individual low. Conversely, individual and marketplace plans often carry higher administrative costs, driving up the overall price of coverage.
Big employers often have access to a variety of comprehensive health insurance plans due to their size and financial stability. These plans can cover a wide range of medical services, including preventive care, specialist visits, and prescription medications. Individual and marketplace plans, in an effort to control costs, may offer more limited coverage options or have higher out-of-pocket expenses for certain services.
Large employers often subsidize a significant portion of their employees' health insurance premiums. This means that employees typically pay a smaller portion of the overall premium cost, making it more affordable for them. In contrast, individual and marketplace plans are not subsidized in the same way, placing a more substantial financial burden on the individual consumer.
Health insurance is subject to state regulations, and the rules governing individual and marketplace plans can vary significantly from state to state. These variations can impact the cost and coverage offered by health insurance plans, potentially leading to disparities in affordability and benefits.
As an independent worker, you have less bargaining power than you would if you have many employees or worked for a large company. That means less options and higher costs. However, all is not lost. As the rate of independent workers continues to rise, more solutions are hitting the market to offset these power imbalances.
State mandated Marketplaces: These plans are only available for the self-employed, freelancers and contractors. These exchanges are able to access slightly better plans and also offer tax credits if your income falls below a certain threshold.
State Marketplaces are great for those making a low income, or who are unemployed (temporarily or permanently)
Professional Employer Organizations (PEOs): These organizations offer a range of employer services (payroll support, benefits, tax support) for small companies. However, if you’re a self-employed individual (i.e no employees) or individual freelancer, PEOs are typically cost-prohibitive and not a great fit.
Freelancer-specific Platforms: Similar to PEOs but focused on individuals, these platforms provide a range of services in addition to healthcare benefits - like payroll support, income smoothing, billing and invoicing support and tax withholding and payments. These all in one tools - like 8x5 - help individuals can allocate less time to admin and get the security of big benefits while staying autonomous. Che
There is so much freedom and flexibility that being self employed or freelancing brings. Unfortunately, our modern insurance systems just have not caught up, leaving many independent workers in a lurch when it comes to affordable, comprehensive healthcare coverage. Luckily, new products are emerging as solutions for these workers so that you don’t have to trade autonomy for security.
Learn more about 8x5 Benefits here.