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Why Would Someone Opt-out of Employer Health Insurance?

By on November 28th, 2011
Filed: Employee Benefits, Facts, Health Insurance, Open Enrollment

Given the choice between employer-based or individually-purchased health insurance, most of us would choose the first. And for most people, that would be the best choice. Employer-based health plans often provide robust coverage and costs are split between employers and employees. Plus, you can’t be turned down for coverage under an employer plan based on your medical history.

However, as mentioned in a recent Reuters story, there are real-life scenarios when people eligible for employer-based health insurance may prefer to opt out and possibly buy coverage on their own. Let’s look at seven of these scenarios.

When might someone opt-out of employer-based health insurance?

- When the share of premium paid by employees gets unaffordable – Employer-based health insurance costs increased 9% for family coverage and 8% for single coverage in 2011. They’re projected to increase another 7% in 2012. Those increased costs typically trickle down to employees in the form of higher monthly premiums or higher annual deductibles. At eHealthInsurance, we hear on a regular basis from consumers who can no longer afford their employer-based coverage and are looking for alternatives in the individually-purchased market.

- When employer plans no longer meet workers’ coverage needs – One of the ways employers may try to compensate for increased costs is by downsizing the benefits and coverage levels on the health plans they offer to employees. This could take the form of reduced prescription drug coverage, for example. Or, employers may opt to drop maternity coverage (in states where that’s allowed) or increase the employee’s share of costs for maternity care. If the benefits you value most are being cut under your current plan during open enrollment, you may be tempted to explore other options.

- When employer contributions toward dependent premiums get slashed – Unlike employer contributions toward employee coverage (often required to cover at least 50% of the employee’s total monthly premium), there are usually no minimum contribution requirements for spouses and dependents. As such, employers can shift a great deal of the premium cost for covering dependents onto the shoulders of employees. This is a point where employee self-education can go a long way. A recent eHealthInsurance/Kelton Research survey showed that a mere 13% of persons with employer-based insurance know how much their employers contribute toward dependent coverage. Employees who do their homework may find that they can save money by insuring dependents on separate, privately purchased plans.

- When covered adult children (under age 26) live out of state – Thanks to health care reform, many parents are now allowed to keep adult children ages 19 through 25 enrolled under the family’s health insurance plan. This was intended to help increase coverage rates for one of the most chronically-uninsured segments of the population. However, employers are not always required to contribute anything towards the premiums of adult children and the coverage may be valueless for those who live out of state. Insurance companies typically contract with medical providers in a single state or local area. Adult children who live outside of that area (during the school year, for example) may have severely reduced – or virtually non-existent – medical coverage.

- When they want a better plan than their employer offers – This may be more common among small employers who aren’t always able to give workers robust benefit packages. Small employers may offer only a single health insurance plan, and it may not be the best fit for every employee. A 2009 J.D. Power survey found that overall consumer satisfaction with individually-purchased plans was comparable to or slightly higher than satisfaction among those who get their coverage through small employer groups.

- When their preferred doctors are no longer covered – For various reasons, employers sometimes opt to change carriers and offer totally new plan options during open enrollment. This can mean a change in the network of doctors and hospitals available to employees and their dependents. Persons with a strong preference for a particular doctor may choose to look for an individually-purchased plan accepted by their doctor, rather start all over with a new medical care provider.

- When employees want health insurance portability – When you buy health insurance on your own you don’t have to worry about what you’re going to do for coverage if you lose your job. You take your health insurance with you from one job to the next in the same state. Some employees may see this as a benefit in an uncertain economy. If they were to develop a medical condition while covered under an employer plan and then lose their job, they may have a hard time qualifying for coverage on their own – and COBRA premiums can be prohibitively expensive for some.


About Carrie McLean

Carrie McLean has been in the health insurance field for 7 years and is licensed in all 50 states. She is often seen in the media discussing health insurance trends and issues from an insider’s perspective and as a consumer advocate, having personally helped thousands of individuals and families search for and find affordable health insurance.

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