Performance Improvement 2008. Who Had Individual Health Insurance and How Did It Compare With Other Private Coverage Obtained Through Employers?


Consumer health surveys were analyzed to better understand who has health insurance coverage and how key elements, such as health status and how premiums are paid, vary by type of insurance. Most non-elderly persons who have health insurance obtain it through their employer or through a family member´s employer, and the poor sometimes are covered through public programs. Approximately 17 million persons under age 65 in 2006 had coverage through an individually purchased private policy. Non-group (individually purchased) insurance is less common than employer-provided insurance. Increasing such coverage through tax credits is one means to increase health care coverage.

Risk pooling occurs in both group and non-group plans, even though initial premiums paid through group plans did not vary by a person´s health risk, while those in non-group plans typically did. Since non-group plans are primarily regulated by States, and many employers are exempt from State regulation through the Employee Retirement Income Security Act, various State and federal Health Insurance Portability and Accountability Act regulations affect who purchases non-group policies and the premiums they pay. The most important of these regulations appears to be "guaranteed renewability," whereby individual premiums may not be increased solely because changes occur in the individual´s health status. But premiums may be increased for all persons covered by the policy. This finding holds both for States with extensive regulations as well as for those with more limited regulations. Statistical analysis relating premiums paid to a person´s characteristics and health status, including the onset of new chronic conditions, indicated that premiums in non-group plans were not proportional to the expected expense that the person was likely to incur. This probably occurred because guaranteed renewability, over time, prevented the premiums of higher-risk individuals from rising.

The main failing of the non-group market was not how it treated high risks, but how it treated all risks. Since administrative expenses, including those due to underwriting, consumed at least 30 percent of premiums paid, non-group coverage could be more expensive than large group coverage for a given level of coverage. Non-group plans provided health insurance coverage to a significant portion of the non-elderly population. Subsidizing the purchase of such policies at the State (e.g., Massachusetts), or Federal level is one approach to reducing the number of uninsured. One obstacle is the high proportion of premium revenue consumed by administrative expenses.

Report Title: Risk Pooling and Regulation in Today's Individual Health Insurance Market;
Agency Sponsor: ASPE-ODALTCP, Office of Disability, Aging, and Long-Term Care Policy
Federal Contact: John Drabek, 202-690-6443
Performer: MEDSTAT Group
PIC ID: 8645

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