On the Horizon: Individual Insurance Market Changes

A description of the individual health insurance market shows that premiums tend to be lower, and benefits less expansive, than in the group or employer-sponsored market. But change is right over the horizon.

The authors of the current study proclaim that the Affordable Care Act (ACA), signed by President Obama in March 2010, was the most important piece of social legislation since Medicare and Medicaid were created in 1965. Support for this claim come from the major changes in the health insurance market regulations that will occur as a result of the law, the subsidies  provided to support the purchase of private health insurance plans, and the requirement that all Americans buy health insurance.

The current study sought to serve as a baseline estimate of the benefits offered and costs imposed on customers in the individual insurance marketplace (as of 2007). The primary source of information about the health insurance plans surveyed (from a random sampling of 10 states) derived from data on ehealthinsurance.com.  The ten states selected were California, Florida, Iowa, Louisiana, Massachusetts, Michigan, Mississippi, Ohio, Pennsylvania, and Utah; half of the surveyed states had some form of rating restrictions currently imposed on health insurers (e.g. community rating, age rating, etc.). The surveyed states covered 40 percent of all individually insured patients nationwide. Information on health plans were for hypothetical 25 and 55 year old men and women without pre-existing conditions.

As of 2007, 60 percent of the individual market was enrolled in preferred provider organization or point-of-service (PPO/POS) plans. Eighteen percent were covered by health maintenance organizations (HMO); another 18 percent by high-deductible health savings accounts (HSA). The remainder (4 percent) were covered by indemnity insurance. Plan type enrollment varied tremendously by state.

By comparison, 70 percent of employer-sponsored plans were of the PPO/POS style. A large minority were covered by HMO (21 percent). Only . The remaining 3 percent of employer plans were covered through indemnity insurance.

In the individual market, premiums vary greatly by age and plan type. Compared to national averages, the premiums were significantly greater for HMO style plans and significantly less expensive for HSA plans. As an example, the premium for a 25-year old male seeking single coverage was $1,823 nationally. HSA plans cost $1,063, PPO/POS plans cost $1,734, and HMO plans cost $2,664. These trends held for 25-year old women, 55-year old men, and 55-year old women as well.

Out-of-pocket costs  in the individual market ($5,271)  were significantly higher than in the employer-sponsored market ($2,167). A majority of plans surveyed charged co-payments for office visits (63 percent), specialty visits (50 percent), and generic medications (54 percent).

Additional services such as maternity and mental health coverage (which are nearly universal among employer plans) were far less common in the individual market. Only 42 percent of individual plans covered maternity services; sixty-two percent and 77 percent covered inpatient and outpatient mental health, respectively.

Commentary

The individual insurance market covers over 15 million Americans. Unfortunately, the protections and risk-pooling made possible by employer-sponsored plans have not historically extended to the individual market. Very few states require that health insurers sell their products to all citizens within their boundaries without regard to pre-existing conditions.

In the coming years, implementation of the Affordable Care Act will require health insurers to offer individual plans with limited underwriting – based only on age, family size, geography, and smoking status. However, as this transition occurs, premiums will rise as benefits come more in line with those experienced in the group market.

In order to successfully supply a , health insurers will have to increase premiums on the young and the healthy in order to accommodate and rules against medical underwriting for pre-existing conditions. Five percent of patients account for nearly 50 percent of health expenditures. The important question – that which cannot be answered scientifically but only morally – is: Who is supposed to pick up the tab? The ACA answers, all of us.

Whitmore, H, et al. The Individual Insurance Market Before Reform: Low Premiums and Low Benefits. Med Care Res Rev 2011; 68 (5): 594-606.

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Cedric Dark, MD, MPH