Advantages Of Group Health Insurance

From a social viewpoint group insurance has proved beneficial because it has provided the great majority of individuals with protection against the risks of premature death or sickness. The specific advantages of group coverages help explain why the growth of group insurance has been so rapid. 

The advantage which is given the greatest attention is cost. Group insurance is almost always provided at a lower cost than individually underwritten insurance primarily because of the following reasons: 

(1) The policyholder assumes many of the administrative and claims-handling details.
(2) Group insureds tend to have a better loss record than the average of persons individually insured.
(3) The insurer experiences lower selling costs. Per individual insured, the insurer spends less to develop and install a group plan involving thousands of premium dollars than to sell an equivalent amount of individual insurance.
(4) Group insurers such as Blue Cross and other community plans are tax exempt because of their nonprofit nature. Also, many of these plans are service rather than indemnity oriented and purchase medical services in large volume on a wholesale basis. 

An advantage linked to cost is the tax savings for the employee. For example, assume an employee is given a choice between a $25 increase in monthly salary or $25 a month in group insurance coverages. If he elects the salary increase, income taxes will claim at least $5 of the increase, leaving $20 to buy individual coverage. In addition, the individual coverage will be somewhat less than the similar group coverage that could have been purchased with the same dollar outlay. No matter what the employee chooses, the employer may deduct the $25 cost as an expense. However, if the employee elects to take the $25 of group insurance, he is not taxed for that $5 increase in his real income. In addition to lower cost, group plans are advantageous because they provide insurance despite an individual’s physical condition. Other advantages center on more liberal contract provisions and their interpretations. For example, claims are paid more freely and without the scrutiny that accompanies payment under individual coverages. Also, once an individual is a member of the insured group, he cannot be dropped unless he terminates employment. This in effect gives him noncancellable, guaranteed renewable coverage.