Individual Health Insurance

Among the various ways Americans can obtain private health insurance coverage, the version usually cited as most problematic is the individual market. Data on this markets how some problems relative to either private employment-based group insurance or public insurance: higher premiums relative to benefits because of higher administrative costs and lower or no tax breaks, risk-based underwriting, and higher rates of turnover. Consumers clearly are faced with more immediate challenges in navigating the individual insurance market than in other settings. 

One unanswered question about different types of health insurance markets, however, is in many ways the most important one: once someone has done what many would consider to be the right thing, and obtained insurance before becoming a high risk, how likely is he or she to retain insurance if a high-risk chronic condition hits? To what extent can being or becoming a high risk trigger the loss of insurance coverage? We know that the great majority of uninsured high-risk people had some private insurance sometime in their lives, so one way to diminish the problem of the high-risk uninsured would be to devise insurance arrangements that make it more likely for people to maintain coverage (in other words, that have higher “persistence”), especially when people transition into high-risk health states. 

We also know that the vast majority of people start out their adult lives as low risks and only become higher risks as they age and as chronic conditions pile up. Societal concern about not having coverage should apply to people at all risk levels, but we probably are more concerned about the retention of coverage by people who are or have become high health risks, since insurance-impacted access to care may have the greatest short-run consequences for health for people who are already sickly. The common negative perception of individual insurance, based largely on its high net premiums attributable to high administrative cost and lack of tax advantages, suggests that it might score poorly on the persistence scale. But there is a feature unique to individual insurance that potentially works in the opposite direction: guaranteed renewability at class-average rates. This is a policy provision in which the insurer promises not to increase premiums differentially based on health risk for people seeking to renew. Although individual insurance is medically underwritten when newly issued, and the insurer is free to raise premiums for all in a risk class, individual insurance is not supposed to be “re-underwritten” if one buyer’s risk should change; the buyer has an unqualified right to renew at the rate charged to others in the class, regardless of any change in his or her health state. 

Group insurance, in contrast, is often not guaranteed renewable at premiums independent of risk changes at the group level (depending on state insurance regulations and whether or not the group self-insures), because changes in group membership as workers leave jobs or are hired over time may change their score experience of the group. More importantly, there is no guarantee whatsoever of a continued long-term offer of coverage at nondiscriminatory rates to individual employees (or their dependents)who leave the firm’s employment, whatever the offer of insurance to those who remain in the group. The Health Insurance Portability and Accountability Act (HIPAA) “guaranteed issue” rules that protect some workers leaving a group and transitioning to individual cover-age do not specify anything about future premiums and, in particular, do not preclude the possibility that the offering of non group coverage to someone who became a high risk is at extremely high premiums. 

Employees who are or become high risk who do not retain their jobs have at best a temporary option to continue coverage at average group premiums under provisions of the Consolidated Omnibus Budget Reconciliation Act(COBRA). However, these provisions do not apply to groups smaller than twenty. All job-losing workers will be left without a guarantee of the opportunity to obtain coverage at the previous group premiums after eighteen months.

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