The Impact of Access Regulation on Health Insurance Market Structure. B. Individual Health Insurance Markets


The individual health insurance market is much smaller than the group market, both in terms of the dollar volume of premiums earned and the number of insurers writing business. In 1997, insurers wrote $8.2 billion in earned premiums in the individual market – less than 6 percent of the volume of business that insurers wrote in the group market. BCBS plans dominate the individual market, writing fully 50 percent of all earned premiums in the individual market in 1997. Commercial insurers and HMOs nearly evenly divided the rest of the market, holding 24 percent and 26 percent, respectively. Between 1995 and 1997, total earned premiums in the individual market, aggregating across all states, rose just 7 percent. As in the group market, the national change masks significant variation among states: some states (California, Delaware, North Dakota and Utah) showed large growth in the volume of premiums written between 1995 and 1997 – reflecting growth in insured lives, growth in average premiums, or both. In other states (Connecticut, Idaho and Michigan), the volume of business in the individual market declined. These declines may reflect lost coverage; however, it seems likely (given the modest growth in group coverage over these years) that they represent movement between the individual and group markets.

As in the group market, the number of insurers per state varies dramatically among the states: in 1997, New York and Texas had more than 40 insurers writing individual coverage, while six states (Alaska, Delaware, Idaho, Rhode Island, Utah, Vermont) and the District of Columbia had fewer than 5 insurers in this market (see Figure 3). Unlike the group market, in the individual market the number of insurers on a population-adjusted basis varies about as widely as the unadjusted number: Wyoming and South Dakota have many individual insurers per capita (related to their very small populations), while the most populous states (California, Michigan, New Jersey, Ohio, Pennsylvania, and Texas) have fewer than two individual insurers per million population.

Between 1995 and 1997, the changes observed in the group market also occurred in the individual market (see Table 7). The number of HMOs writing group coverage, multiplied by the number of states in which they wrote business, increased 16 percent (compared to 22 percent in the group market), but the share of the market that HMOs held rose more than 10 percentage points. BCBS plans consolidated in the individual market and still lost significant market share (nearly 4 points); commercial insurers exited the market in some states (sometimes through merger or acquisition, as in the group market) and nationwide lost more than 7 points of market share. In summary, at the end of the three year period, significantly more HMOs were writing individual coverage (sometimes, as in New York and Maine, required by the state to do so), and they held substantially more market share.

Like the group market, the individual health insurance market is extremely concentrated – a fact that is only partly explained by the very large average market share that BCBS plans hold. In all states, the largest three group insurers hold more than one-half of the individual market, and in 20 states the largest three insurers hold more than 80 percent of the market (see Figure 4). However, the residual of the market in many states is highly fragmented: the smallest 50 percent of insurers hold more than 20 percent of the market in only five states (New Hampshire, New Mexico, Alabama, West Virginia and South Dakota). The average insurer in the individual market survives on very low premium volume, relative both to the average insurer in the group market and to the largest insurers in the individual market.