The employer-based health insurance system has worked well in the United States for a number of years. But changes in the workplace and the health care system are making employer-based health insurance an anachronism. U.S. workers increasingly are abandoning the traditional, onsite 9-to-5 job. And rising health care costs are making low-deductible insurance unaffordable.
Are health insurance policies available that can adapt to these changes? Yes, in the individual market for health insurance.
Benefits of the Individual Market
There are some significant benefits in the individual health insurance market that are not available in the small- and large-group markets.
For example, the individual health insurance market works more like other types of insurance, where individuals purchase and own their policies themselves. When they change jobs, those health insurance policies travel with them.
In the individual market for health insurance, individual consumers can meet personally with an insurance agent, who must cater to the policy owner, not to an employer. Consumers in the individual market comparison-shop; they choose the benefits and coverage they want, need, and can afford from a variety of insurers, plans, deductibles, or co-pays. Or they can choose to enroll in an HMO. Once they decide on a plan and are accepted, the policy belongs to them.
In some states, the individual market for health insurance works very well: Individuals can get good coverage at reasonable prices. Indeed, in many states individual policies are significantly less expensive than group policies—turning on its head the conventional wisdom that if you want affordable heath insurance, you have to be in a group policy.
One reason for this reversal is that some states have tried to minimize the financial impact of the regulations and mandates they impose on the market. For example, a state may mandate that insurers offer specified coverage, such as drug and alcohol abuse counseling, but may not require that they cover that service in every policy.
In addition, good states avoid or limit guaranteed issue provisions, the most destructive mandate to a health insurance market. According to Blue Cross Blue Shield, 13 states have passed some form of guaranteed issue, and 10 of those have also passed community rating, which requires insurers to charge the same price for a policy regardless of a person’s health status.
Finding Affordable Policies
One way to comparison-shop insurance premiums is to go to eHealthInsurance.com, which lets consumers enter a zip code and get a health insurance quote, usually from several different companies and a wide range of plans. For example, a family of three (a male and female adult, age 40, and one child, age 10) looking for a policy with a $2,500 or a $500 deductible might consider the following options (figures for illustration only, as premiums may fluctuate over time):
Denver, Colorado
- $2,500 deductible PPO from United Wisconsin Life/American Medical Security – $178/month
- $500 deductible PPO from Anthem Blue Cross Blue Shield – $293/month
Oakland, California
- $2,500 deductible PPO from Health Net – $218/month
- $500 deductible POS from PacifiCare – $659/month
Indianapolis, Indiana
- $2,500 deductible PPO from Golden Rule Insurance Co. – $112/month
- $500 deductible PPO from Unicare – $239/month
Harrisburg, Pennsylvania
- $2,500 deductible PPO from United Wisconsin Life/American Medical Security – $158/month
- $500 deductible PPO from CeltiCare – $449/month
Chicago, Illinois
- $2,500 deductible PPO from Golden Rule Insurance Co. – $172/month
- $500 deductible PPO from Unicare – $327/month
Making the Individual Market Work Better
Even though the market for individually purchased health insurance works well in some states, it could work better nationwide. There are two primary actions Congress could take to encourage more coverage with individual policies and reduce the number of uninsured: reform the tax code and eliminate mandates.
Although implementing these reforms will not achieve universal coverage, they would go a long way toward moving the 38 million uninsured into the insured camp, which also would reduce cost shifting. In turn, this change would put less upward pressure on insurance premiums.
In addition, a mechanism needs to be found by which individual policies can be bundled together and sold to a group—providing employers with the benefits of the individual market, but with the cost savings that can come with the group market.
Expanding the individual market for health insurance would expand choice, lower costs, and decrease the number of uninsured. A growing individual market would:
- Compliment the current shift from defined benefits to defined contributions. The trend in employee benefits management is for employers to shift from defined benefit plans to defined contribution plans. This trend blends very well with the workplace changes coming about as a result of the New Economy. Indeed, the New Economy and e-commerce no doubt are partly responsible for the shift.
As employers increasingly move to defined contribution benefits, they will likely make health insurance benefits a part of that package—giving employees a set amount of money with which to purchase health insurance, set money aside in Flexible Spending Accounts or Medical Savings Accounts, or a pension plan. Under this scenario, the employees would decide how much to allocate where.
- Create more consumer choice. In health care, as in many other realms, people want more choices, not fewer. The retail market and the Internet are making a wide range of goods and services available at reasonable prices that were not available in the past. That demand for more choice has already begun to penetrate the health insurance market. (See “Survey: Americans Want Health Care Choice,” Health Care News, October 2001.)
Large- and small-group health coverage has typically offered very little choice. Not so in the individual market. When the market is not hampered by regulatory restraint, consumers can mix and match the various components to design a plan that fits their own needs. Giving more people more choices will raise satisfaction levels, as patients begin to feel they have the health insurance policy of their own choosing, rather than a policy handed to them by someone else.
- Encourage more low-income people to get health insurance. A tax credit sufficient to cover most or all of the cost of a basic health insurance policy would encourage millions of people to get basic coverage. As more people moved into the ranks of the insured, that change would increase demand for choices in the health insurance market. But more importantly, it would decrease the number of uninsured.
- Reduce cost shifting. Having more people insured would decrease the financial pressure on doctors and hospitals that treat the uninsured, even when they know they may not get paid for their services. Those uncompensated expenses are often shifted to those who do pay their bills, which means insurance often pays more than the true cost of the care. Reducing or eliminating cost shifting would lower the upward pressure on premiums, making them more affordable and leading to even more people being insured.
Conclusion
While the employer-based health insurance system can and will evolve, it is not clear that system is flexible enough to meet the needs of the changing workforce. But the individual market can, and it already provides coverage for millions of American families. The individual market provides the choice and protection consumers want and need . . . at affordable prices.
Dr. Merrill Matthews Jr. is a visiting scholar with the Institute for Policy Innovation in Dallas, Texas; policy director for the American Conservative Union; and assistant editor for Health Care News.
For more information . . .
see Matthews’ “The Individual Market for Health Insurance: A Solution for the New Economy?” published by the Employment Policies Institute in March 2001. www.epionline.org
