Individual Health Insurance vs. Group Health Insurance

When small businesses consider offering health insurance for the first time, it's common to weigh the options between offering a traditional group health insurance plan with offering a "pure" defined contribution health plan. With a pure defined contribution health plan, the business provides employees tax-deductible allowances for reimbursement of employees' individual health insurance, and other medical expenses.

What is the difference between individual and group health insurance? Here's a concise overview.

  • Individual health insurance is a type of health policy that an individual purchases for himself and/or his family. Individual health insurance policies are often purchased with the guidance of an insurance agent to help navigate plan choices and premium costs. Until 2014, applicants for individual health insurance may need to complete a medical history questionnaire when applying for coverage. In most states (until 2014) an insurance company can charge more, or decide not to cover applicants with medical conditions.

  • Group health insurance coverage is a type of health policy that is purchased by an employer and is offered to eligible employees of the company, and to eligible dependents of employees. Currently, the majority of non-elderly Americans (56%) have group health insurance coverage through their employer, or the employer of a family member. With group health insurance, the employer selects the plan (or plans) to offer to employees. The premium cost is often split between the employer and employee, and there is a minimum percentage rate the employer must contribute.