NCPA - National Center for Policy Analysis


May 28, 2009

People who have lost their employer-provided health insurance because of a layoff, early retirement or other reasons are turning to a little-known strategy to get coverage: forming a small business, or using an existing one, to buy a group policy, says the Wall Street Journal.

The strategy is used by small groups, and is particularly useful for people with chronic health problems that insurers refuse to cover or that result in steep premiums.  Group health plans, under federal law, are required to cover such conditions, as long as the individual doesn't go uncovered for more than 63 days:

  • Businesses with as few as one or two employees can qualify for group health insurance in some states.
  • A group can't be denied coverage due to the health of its workers or their dependents, though premiums can be steep.
  • The average premium for small-group health insurance in 2008 was $346 per month for single coverage and $913 for a family of four.

But getting group coverage isn't always simple or cheap.  In fact, it may cost more than simply buying an individual policy, says the Journal.  Still, some small-business owners are discovering that they're already candidates for group coverage, as long as they can prove that they have an actual business:

  • Most states allow businesses with at least two employees to form eligible groups, some allow one of the owners or employees in a "group of two" to waive coverage and in about 12 states, sole proprietors can qualify for group health insurance.
  • Once you establish a legitimate business as a legally recognized entity, you can shop around for quotes, typically with help from an insurance broker who specializes in employee benefits.

However, the smallest groups -- those with just two or three members -- often get hit with a surcharge of about 30 percent over what a larger group would pay, says the Journal.

Source: Kelly Greene, "Hard-to-Insure Find Novel Way to Get Coverage," Wall Street Journal, May 27, 2009.

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