Value in the Individual Insurance Market

Our post on whether we can ever fully fix the individual insurance market got a decent amount of attention last week, from the Kaiser Daily Health Policy Report to the Disease Management Care Blog hosting Health Wonk Review this week. As always, both are chock full of interesting links, especially around health policy questions relating to the presidential race, and at least one from the New America Foundation on rekindling reform in our Golden State specifically.

One response from our post was from Louise at the Colorado Health Insurance Insider, which agreed with our assessment that a McCain-like approach to simply shift people to the individual insurance market “will spell disaster for people with pre-existing conditions” without further reforms.

We also agree that guaranteed issue isn’t enough: she worries about a potential increase in costs if insurers are required to take the sick, and not just the healthy. Some argue for an individual mandate to get a broader base of contributions that would help lower the cost for the sick. I worry, with or without a mandate, that the individual market is still inherently unfriendly for individual consumers, leaving them at the mercy of the big insurers, without the bargaining power of subsidized group coverage.

In stating the case for the individual market, Louise makes two points: One assertion is that the individual market is cheaper than the group market. That’s only true if you compare apples and oranges, or healthy 20-year olds and sicker 60-year olds. It’s simply not applicable to compare a plan that only accepts healthy folks, to those who also covers everyone.

And more importantly, when premiums are cheaper in the individual market, so are the benefits. Last year’s study by Jon Gabel (on the California Health Care Foundation website) shows the value of individual insurance policies have sunk, with such plans paying only around half of the health costs of their subscribers. Louise’s examples suggest that the cheaper policies left the consumer with significant bills.

The fundamental question is value: how to get the best price for a plan that will actually cover a consumer’s health expenses. And the individual market has built-in costs and inefficiencies. It’s more administratively burdensome and expensive to sell policies one-at-a-time versus to large groups, whether through advertising or brokers. There’s the cost of underwriting individuals. And then there’s just the issue of market power, where a large group can negotiate a better deal than an individual.

The second point is about portability, as opposed to the status quo where people lose their coverage (or have to switch providers) when they change jobs. Louise suggests that perhaps we can provide the benefits of group coverage without creating the “job lock”–and I think there are ways to do that: from a large purchasing pool that many employers buy into (and which provides a range of options, as do large employers), as envisioned in SB2 or AB x1 1, or even a state-financed health plan. There’s been lots of talk, at the state and federal level, of offering a public plan option for people, which could potentially be available in multiple situations.

It seems we should be able to move to a system of seamless, portable coverage without having to give up all the other benefits of group coverage.

Health Access California promotes quality, affordable health care for all Californians.

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