What do people actually buy if they have a chance to buy their own insurance coverage? Is there a real market out there that reflects consumer choice?
As it turns out, there is such a market . . . and groundbreaking research confirms not only its existence, but its strength.
The research is not based on surveys of health care benefit managers, assumptions or extrapolations based on employer-provided health insurance, or what employers or employees might think, but on real consumer behavior in the individual health insurance market.
At a June 21, 2001 press conference, the executives of eHealthInsurance outlined the findings of their study, “Analysis of National Sales Data of Individual and Family Health Insurance: Implications for Policymakers and the Effectiveness of Health Insurance Tax Credits.” They were joined at the announcement by House Majority Leader Dick Armey (R-Texas), House Ways and Means Health Subcommittee Chairman Nancy Johnson (R-Connecticut), Representative William Lipinski (D-Illinois), and White House adviser Mark McClellan.
Policies Are Affordable
eHealthInsurance researchers examined 20,000 policies purchased in 42 states covering 95 percent of the U.S. population, divided about equally between men and women. The analysis included 7,000 different health policies offered by more than 70 insurers, including large Blue Cross/Blue Shield plans.
Among other things, the report finds health insurance policies are more affordable than commonly thought.
On average, monthly premiums for individual health insurance policies run between $100 and $125. According to the report, “These market data points from eHealthInsurance, together with average premium data from various health plans and government programs, all seem to refute the perception that average premiums are multiples of two to three times more.” Insurance premiums in the individual market were found to be lower than those commonly found among small businesses in the small group market.
So why is the perception widespread that individual market premiums are much higher?
According to the report, “General perception may stem from specific high premium cases, rather than from statistically significant and geographically and demographically diverse data sets. Individuals paying high premiums may typically have pre-existing health conditions, be near Medicare age, or reside in one of the few states with high prices due to guaranteed issue regulation for the individual market.”
Tax Credits Can Help
The study also concludes that tax credits make individual insurance policies even more affordable, particularly for low-income working people.
A generous tax credit proposal would be “meaningful,” the study’s authors note. Fully half of the individual and family policies analyzed in the study could be purchased for premium amounts within the limits of the proposed tax credits. Three-quarters of the policies have premiums within 75 to 100 percent of the tax credit amounts.
Coverage Is Comprehensive
According to the study, consumers purchasing coverage in the individual health insurance market buy “comprehensive” coverage, not just “basic” or “bare bones” coverage. Policies with a limited set of services and/or high deductibles— sometimes called “catastrophic” policies—were considered “basic” in the study. Policies were considered “comprehensive” if their coverage was equal to the current Medicare Part A and B benefit coverage with some level of Medicare supplemental coverage.
Eighty-eight percent of the insurance policies purchased by single individuals, and 84 percent of the plans purchased by families, were found to be in the “comprehensive” category.
In practice, this means the products consumers are already buying in the individual health insurance market offer coverage not just for hospitalization and physician services, but for a much wider range of benefits—including, almost invariably, prescription drugs.
Plans Have Low Deductibles
Consumers buying policies in the individual health insurance market are getting plans with modest deductibles.
According to the report, 80 percent of the consumers who purchased health maintenance organization (HMO) plans had no deductibles at all. Of the consumers who purchased preferred provider options (PPOs), 71 percent had annual deductibles of less than $1,000.
Consumers Prefer Less Interference
Consumers in the individual health insurance market show a strong preference for less insurance company management, rather than more. Seventy-five percent of consumers purchased PPO plans, while only 16 percent picked HMOs.
According to the report, “This would appear to contradict any assumption that policies in the individual market unduly restrict utilization of health services.
“Rather, it suggests that when confronted with the various tradeoffs and options, most consumers are willing to accept some, but not substantial, restrictions in exchange for lower premiums.”
Economists call this rational economic behavior. Consumers of health insurance, contrary to what critics of consumer choice sometimes assume, are not stupid.
Supports Tax Credits
The eHealthInsurance study has direct implications for consumer choice options being promoted by the Bush administration and conservatives and moderates in Congress.
For example, Armey and Lipinski have sponsored the Fair Care for the Uninsured Act (H.R. 1331), which would create a health insurance tax credit worth $1,000 per individual, $2,000 per couple, or up to $3,000 per family.
As Lipinski remarked, “Not only do eHealthInsurance’s findings provide insight into the cost effectiveness of tax credits for the uninsured, but the data also proves that the proposed tax credit will cover plans that are good for the consumer.”
According to White House health policy adviser McClellan, “The eHealthInsurance report, which is based on real world data on the affordability of private health insurance, is another piece of evidence showing that health insurance tax credits can significantly reduce the number of uninsured Americans. The report highlights the importance of implementing a workable tax credit, like that proposed by President Bush and many members of Congress.”
The eHealthInsurance analysis is an unprecedented look into consumer behavior in the market for individual health insurance. For the first time, many assumptions about consumer behavior in the individual market have been refuted by evidence recorded in an entirely new and valuable database.
Individuals are willing to make rational economic trade-offs, buy plans with modest deductibles, and pay more for coverage more “comprehensive” than “basic.”
Moreover, the affordability of such plans, clearly and convincingly documented by the eHealthInsurance report, means tax credits can have a significant positive impact on the nation’s uninsured population. Tax credits have the potential to significantly reduce the cost of plans available in the individual market, making health insurance more widely available to families who need it.
Robert Moffit Ph.D. is director of domestic policy studies at The Heritage Foundation. This article is derived from a larger analysis published on July 13, 2001 as a Heritage Foundation Supplement, “What the Latest Market Research Reveals About the Viability of Tax Credits for Health Insurance.”
For more information . . .
The eHealthInsurance report, “Analysis of National Sales Data of Individual and Family Health Insurance: Implications for Policymakers and the Effectiveness of Health Insurance Tax Credits,” is available on the Internet at http://www.eHealthInsurance.com.