Although the majority of Americans with health insurance obtain their coverage through group health plans offered through their employers, many individuals obtain their coverage through the nongroup (or individual) insurance market. Currently almost 18 million persons, or almost seven percent of the United States nonelderly (under age 65) population, obtain coverage through individual plans purchased directly from insurance issuers.
Several initiatives at the state and federal level, as well as policy proposals involving health system reforms, have proposed utilizing the individual health insurance market as a means of expanding access to affordable health insurance policies. While health insurance purchased in the individual market has the advantages of being portable (not tied to a person’s employment) and potentially being a better match to a person’s preferences for health coverage than policies purchased through group plans, it does have aspects of significant concern. Among these concerns is how laws and regulations surrounding the individual health insurance market affect its ability to meet various population needs. It is necessary to understand these issues to determine how market reforms would interact with these policies.
Insurers marketing health plans in the individual market use approaches different from those used in the group insurance market to examine insurance applicants. One such approach is that of medical underwriting to identify applicants according to their health status. Some applicants may be categorized as likely to cost the insurer more in claims than a healthier person, resulting in insurers charging them higher premiums or restricting or denying coverage. Other differences between the group and individual market involve the application of different state versus federal regulations in the marketing of products, and other accountability requirements of entities selling individual policies.
In reviewing how insurance is regulated, it is important to keep in mind an understanding of what insurance is and why it is regulated. This has been expressed rather succinctly in an introduction to a recent paper on insurance regulation (Kofman and Pollitz, 2006):
Health insurance serves several public policy goals: it enables consumers to spread the risk of health care expenses and provides them access to medical services that they might otherwise not be able to obtain. Because of the importance of health insurance to the general public welfare, states have been regulating private health insurance companies and products since the late 19th century. State insurance regulation has sought to promote several policy objectives, such as ensuring the financial solvency of insurance companies, promoting the spread of risk, protecting consumers against fraud and ensuring that consumers are paid the benefits that they are promised.
Health reform initiatives can choose to work within these constraints or change the rules to facilitate the success of health policy options.