I see this often: Entrepreneurs often include themselves on their company’s group medical insurance plan.
Alternatively, with family businesses especially, the entire business-owning family would be on the same group medical insurance plan.
While this does come with a certain cost-benefit, neither of these approaches is a wise long-term move.
I recommend that entrepreneurs, business partners, and family members in a family business all procure personal medical insurance policies, individually.
Why Individual Policies Are the Answer
Here’s why: Your requirements or your group’s requirements might change over the years, whether that group is your family members or your employees.
Even within a family, every nuclear family unit might have varying lifestyles, lifestyle choices, and as a result varying medical insurance needs.
To then change the requirements for you and your family based on the group’s varying medical insurance needs can be fairly complicated.
Let’s say that some of these changes aren’t positive. As time passes, it’s not uncommon that someone in the family who is on the group plan ends up needing more medical care because of an underlying health condition. This increased requirement of even one individual raises the bar on premiums for everyone in the group.
The right individual medical insurance policy would follow what is known as a ‘community rated scheme.’ This means that premiums are adjusted based on the performance of the community as a whole. With a group plan, however, premiums are pegged to the performance of the much smaller group of individuals covered by the plan.
The most effective approach here would be for an entrepreneur to purchase an individual medical insurance policy. This might end up being 5-10% more expensive than just adding yourself to the group plan, but it gives you total and independent control over every aspect of your contract.
Case Study: The Shah Family
I met the Shah brothers over 12 years ago. This vibrant business family had a net worth of US$ 70-80 million. The three brothers individually have over US$ 15 million of Life Insurance cover in place.
In addition to Life Insurance, they also purchased an adequate amount of medical insurance coverage for the whole family. But they bought the medical insurance cover as part of a group plan.
Over the years, the family has grown and spread out geographically. The three brothers got married and had kids with ages in the family now ranging from age 4 to 55+. The medical insurance needs of the smaller, nuclear family units have changed over time, too. Some of the kids, for instance, have moved away to study or work and have exited their medical insurance plans.
The Big Challenge
Here comes the unfortunate twist: Two of the three brothers have developed certain medical issues, and as a result, the premiums of their policies have continued to increase significantly. Today, this has become a hefty outflow for the company as it pays for the collective, group medical insurance plan with raised premiums for the whole group.
An Alternative Approach From the Start
Had the brothers chosen to purchase private, individual medical insurance plans 10-12 years ago, they would have ended up shelling out a lot less in the long run.
They might have paid higher individual premiums at the start, but the cumulative premiums they would have paid for their individual medical insurance plans would still have chalked up to significantly lower than the group plan.
Is It Too Late for a Solution?
Not in this case, no. Even now, the brothers can (and ideally, should) approach individual medical insurers who will underwrite them based on their individual medical reports.
Once again, this will create an ‘expense’ – shifting out of the group plan and onto another policy. But it provides flexibility and autonomy. Each brother will only pay the level of premiums that he needs to individually and for his nuclear family.
This also ensures that individual family members can change plans and even insurers without affecting everyone else’s policies or relationships.
Win-win-win, really, wouldn’t you say?
If you are on a group medical insurance plan with your employees or as part of a large family group plan and would like to chat about your current structure, feel free to drop me a message. My team and I would be happy to run a quick audit for you.