Individual Health Insurance Is Accessible, Affordable, Study Finds

Published October 1, 2005

On August 29, America’s Health Insurance Plans (AHIP) issued the findings of a comprehensive survey of companies doing business in the individual health insurance market. The survey shows individually purchased insurance is affordable and accessible and offers a wide range of benefits.

According to 2003 data of the U.S. Census Bureau, more than 16 million non-elderly people in the United States are covered by individually purchased health insurance.

For millions of Americans seeking coverage, the AHIP study shows, individually purchased health insurance is more accessible and affordable and offers broader benefits than is widely known. Most applicants are approved without restrictions, and the coverage commonly purchased provides substantial financial protection.

“The individual market is playing a vital and increasingly important role in our nation’s health care system by providing access to coverage and substantial financial protection for millions of Americans who purchase insurance without employer sponsorship,” said AHIP President Karen Ignagni in a statement announcing the survey findings.

Attractive Variety

Private-sector health insurance plans are offering innovative products that are attractive to individuals purchasing coverage on their own and that address the needs of segments of the population that were previously uninsured, Ignagni said.

The new study indicates the “typical” policy purchased by consumers in the individual health insurance market is a preferred provider organization (PPO) plan with an annual deductible close to $2,000, annual out-of-pocket limits of about $4,000, and a lifetime maximum benefit of nearly $5 million.

According to AHIP, consumers purchasing individual coverage choose from a wide array of products, ranging from traditional indemnity plans and plans eligible for health savings accounts to coverage offered by health maintenance organizations.

“The AHIP study demonstrates that the market for individually purchased health insurance is healthier than is commonly believed,” said Grace-Marie Turner, president of the Galen Institute. “Millions of people are purchasing insurance that is comprehensive and affordable, and the great majority of those who apply for coverage get it.

“The individual market will become even more dynamic in the future as more and more people see the appeal of Health Savings Accounts and other consumer-directed products,” Turner said. “The great need is for state legislatures to relax the regulations and mandates that keep prices artificially high in many states and that keep people from buying the coverage that best suits their needs.”

Well Priced

AHIP found that in 2004 the annual premium for single coverage averaged $2,268 and the average annual premium for family coverage was $4,424. By comparison, annual premiums for employer-sponsored health plans during 2004 averaged $3,696 for single coverage and $9,948 for family coverage.

Nearly every plan in the market offered, and most people purchased, a prescription drug benefit and coverage for inpatient and outpatient mental health treatment, inpatient and outpatient substance abuse treatment, annual visits to an obstetrician/gynecologist, well-baby care, and complications of pregnancy.

One measure of the financial protection provided by an insurance policy is the limit placed on the consumer’s annual out-of-pocket spending. Most consumers picked plans with annual out-of-pocket limits under $4,000.

Another important measure of financial protection provided by a policy is the lifetime maximum benefit. All plans had lifetime maximum benefits of $1 million or more. Most consumers picked plans with lifetime maximums of more than $2 million, with the average at nearly $5 million.

Widely Available

The study shows that even in states that allow insurers to consider an applicant’s medical history, nearly nine of 10 people who completed the application process for non-group insurance were offered coverage.

Of those applicants offered coverage, more than three-quarters received their requested coverage at standard premiums, while 22 percent were offered full coverage at higher initial premiums. Only 1 percent of offers included a coverage exception for a specified condition.

According to the study, individual coverage is being purchased by people of all ages. Offers are less likely for applicants who apply later in life. Nonetheless, 80 percent of qualified applicants between the ages of 50 and 54, and 70 percent of those aged 60 to 64, were offered coverage.

Appealing to Small Employers

The survey asked AHIP member companies active in the individual market to provide detailed data on the benefits provided under policies and certificates sold during the 12-month period ending June 2004. The survey was designed to provide a level of detail on individual market benefits comparable to that available for employer-sponsored benefits.

“In the current economic environment, with many firms ‘right-sizing’ their workforces and outsourcing jobs, more and more self-employed and individual consumers are coming into the individual market,” said John P. Garven, Heartland Institute policy advisor and 2005 recipient of the National Association of Health Underwriters’ Distinguished Service Award.

“Moreover, because of state and federal mandates that apply to employer-sponsored coverage, many of our small business clients are beginning to look seriously at individual policies as a more affordable health coverage option for their employees,” said Garven.

Significant Premium Savings

“Within my own firm,” added Garven, who is co-founder and president of Benico Ltd., “my wife and I and one other employee own high-deductible plans in tandem with health savings accounts; a second employee has a HIPAA-CHIP PPO policy with a $1,000 deductible; and the third, who has young children, has a PPO plan with relatively low office visit and prescription co-payments.

“We have found that buying insurance through the individual market is saving our small group 40 to 50 percent in premiums,” Garven said, “while at the same time giving each individual an opportunity to purchase coverage that makes the most sense for his or her specific situation, instead of the ‘one-size-fits-all’ aspect sometimes inherent in employer-provided coverage.”

Policy experts see the AHIP study as a call for change. “This research indicates that individual health insurance markets can function well,” said John R. Graham, director of health care studies for the Pacific Research Institute in San Francisco. “Unfortunately, policy in the U.S. has treated this market like an orphan, stranded between employer-sponsored and government-run health insurance. Both federal and state governments need to change the rules to allow Americans greater choice in buying health insurance.”

Diane Carol Bast ([email protected]) is vice president – internal affairs for The Heartland Institute and executive editor of Health Care News.

For more information …

The two-page summary of the August 2005 AHIP report, “Individual Health Insurance: A Comprehensive Survey of Affordability, Access, and Benefits,” is available online at The full text of the report is available at