On the surface, family health insurance plans tend to come with a higher overall price than individual plans. When broken out per person, however, they often end up costing less. In order to understand why, however, it’s necessary to understand how health insurance plans work.
What is a Health Insurance Pool?
In order to keep costs down, health insurance companies place buyers into a pool. These pools can be made up of thousands of people, each of whom is paying their premiums in order to provide coverage for other people in the pool. The bigger the pool, the less overall risk there is for the insurance company.
Because a family adds several people to the pool all at once, adding a family usually costs less than insuring each person individually. Furthermore, the people who are added are typically working-age adults and children, both categories of people who tend to be lower-risk to health insurance companies. This means that many families are surprised to see that insuring a family works out to be cheaper per person than buying individual plans.
Health insurance pools have been around for decades, and they are the primary way that health insurance companies are able to assess risk for everyone. Rather than making everyone who applies for health insurance go through a medical exam, health insurance pools allow companies to provide fast and easy quotes to individuals based on only a few data points.
Why Are Family Plans Cheaper Per Person?
Generally speaking, younger, healthier people are able to bring down the risk in a pool. While there are certainly exceptions, adding working-age adults and children generally means that insurers won’t be paying out for a lot of specialists or frequent care.
Because health insurance plans are often cheaper if they are bought for an entire family, many families take some time to figure out the comparative costs for as many people as they can. For example, many plans will allow families to include stepchildren. This means that a lot of families will have one adult purchase a family plan that can cover multiple people, bringing costs down for everyone.
It’s also important to look into the possibility of using other health insurance plans as a back-up or secondary insurance. If the children in a family qualify for a government program such as Medicaid, it may still make sense to purchase a family policy for the remaining family members, even if the children with Medicaid would likely never make a claim on the insurance. This is because the cost of a family plan is often so low that buying the family plan will still make sense over buying the uninsured family members individual policies.
It’s also important to think of family members who have recently graduated. Federal law allows families to keep family plan coverage on children until they turn 26 years old. This can often save a young adult a lot of money when compared to purchasing an individual policy, even if that person has health care benefits through their job.
It is also worth considering how much coverage is available through a family plan versus an individual plan. Even if the young adults in a family have the option to purchase their own health insurance, they may want to consider an alternate family policy if it provides them with cheaper co-pays or prescriptions.
Even if the costs for an individual policy look to be about the same as those for a family policy, it is very important to consider this level of coverage. Family policies can often come with a larger choice of doctors or lower co-pays. Again, this is because of the larger pool of people that family plans tend to offer.
Finally, it may be worth it to get a family plan if individual family members have high deductible health insurance plans. In this case, the family plan would act as a secondary policy, but it would allow uninsured family members to have coverage while also insuring that the family members with high deductible policies are able to access the health care they need in an emergency without having to dip too much into their savings.
How Can Individuals and Families Lower Their Health Insurance Costs?
Family plans can be a great way to lower health insurance costs, but if an individual simply does not have access to a plan like this, it is still possible to save money on their health insurance. Fortunately, a lot of these tips apply to people who are in family plans as well.
Start by asking if the individual can apply for government subsidies or programs such as Medicaid. Even if they don’t qualify for Medicaid, there are a number of subsidies that are offered to help people purchase insurance through the Obamacare legislation. These subsidies can often lower premiums by hundreds of dollars a month. You can learn more about Affordable Care Act pros and cons here.
Protect your health. Quit smoking, maintain a healthy weight, and keep moving. This will make an individual look lower risk to an insurance company and can help to reduce premiums (and overall costs) by thousands of dollars a year.