As noted in my last post, a lot of my time lately has been devoted to the pending Direct Pay rate filing. Direct Pay, offered by Blue Cross & Blue Shield of Rhode Island, is the only individual market product available in Rhode Island.
In general, enrollment in Direct Pay has decreased, prices have increased at a rate greater than general inflation and the Direct Pay products include more cost sharing. This is not news to anyone--Blue Cross, consumers, my office or anyone who follows health insurance. In fact, these trends generally mirror what is going on in the larger employer-based health insurance market. Therefore, it is probably safe to say that the individual market suffers from many of the same problems that afflict the employer-based market.
Nevertheless, there has been growing nationwide focus on the individual market. Proposed tax credits, new Section 125 rules, Section 125 mandates, a connector and coverage mandates, all directed toward the individual health insurance market, seem to be springing up all over the place. Yet, a recent report issued by the Kaiser Family Foundation suggests that the individual market has its own unique problems, some of which may be potential impediments to trying to boost overall health insurance coverage by focusing on this market.
The report examines how often people at different income levels buy individual market coverage in the absence of access to employer or public coverage. Using information on income and health insurance coverage from the Medical Expenditure Panel Surveys' Household Component for 2000 through 2003, the study looked at adults aged 19 to 64 (who were not eligible for employer-sponsored health coverage or public insurance programs such as Medicaid or Medicare) who faced a choice between going uninsured and purchasing individual market coverage.
The report found that relatively few people at lower incomes purchase individual market coverage. Among those with incomes at the federal poverty level (currently, this would be $21,200 for a family of four in the continental U.S.),* only five percent purchased individual market insurance. As income increased, though, the percent of those covered increased. However, even at four times the poverty level (currently, this would be $84,800 for a family of four in the continental U.S.), only about a quarter of individuals purchased coverage. Among those with incomes at least 10 times the poverty level, only about half purchased coverage in the individual market.
What is perhaps more interesting, though, is that a similar pattern emerged among people without other coverage options who are self-employed, who typically are able to deduct their health insurance premiums from their taxable income. The analysis found that coverage rates were higher for the self-employed at all income levels, nevertheless most remained uninsured until incomes exceeded four times the poverty level.
The report does not include any analysis as to why people do not purchase individual market insurance. Reasons could include a lack of affordability, a lack or awareness about health insurance options, a perceived lack of value, a conscious decision to remain uninsured, health status restrictions imposed by insurers or some other factors we are not even aware of. None of this seems particularly surprising.
The Kaiser folks suggest that subsidies or government exchanges may be needed to encourage increased participation in the individual market:
These findings show that policy makers considering ways to encourage more people to purchase non-group coverage face a daunting challenge. Non-group insurance does not appear to be a very popular product, and policy makers may need to make significant changes to improve its attractiveness if non-group coverage rates are to improve dramatically. The current low coverage rates, even at fairly high income levels, suggest that subsidies may need to be fairly substantial in order to encourage a large uptake in purchase, and may need to extend higher up the income scale than some policy makers may prefer. Other proposed market interventions, such as creating purchasing pools or public exchanges to simplify the process of purchasing coverage, could potentially play a role in improving market participation. Massachusetts has implemented such an approach and other states are considering it. (emphasis added)Yet, while calling for subsidies or the creation of government "connector" agencies may appear to be attractive strategies to pump up enrollment in the individual market, the MEPS data remind us of just how little we know about this market or what might drive take-up.
Compared to the attention we as a nation have showered on the employer-based health insurance market, the individual market has effectively languished on the back burner. The individual market has simply been a residual market--one where folks went when they had no other options. Sure, there has been tinkering, with high risk pools, mandated rating mechanisms and the like. But these effort have not yielded insights that allow us to discern whether we should be trying to bolster the sagging employer-based market or strike a new path by pushing folks toward (or into) the individual market.
Furthermore, even if we do not consider the impending recession,
which will surely put a damper on government action, financing problems loom large (as discussed here and here and here) and may be a significant barrier to an infusion of significant government subsidies or the creation of government exchanges in aid of the individual market. In addition, the MEPS data suggest that tax incentives may not work so well to encourage take up. For example, in the 350%-399% FPL range, take-up is 23% for non self-employed vs. 30% for self-employed--a difference of only 7 percentage points. As the report observed, individual market insurance is simply not a popular product.
I guess we'll simply have to wait and see how all this attention on the individual market shakes out. Will it really make a difference, or are we just taking yet another opportunity to avoid addressing the issue of rising medical costs, which is the main reason why increasing numbers of folks don't have health insurance?
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* Current FPL levels (for 2008) are:
| Persons in Family or Household | 48 Contiguous States and D.C. | Alaska | Hawaii |
|---|---|---|---|
| 1 | $10,400 | $13,000 | $11,960 |
| 2 | 14,000 | 17,500 | 16,100 |
| 3 | 17,600 | 22,000 | 20,240 |
| 4 | 21,200 | 26,500 | 24,380 |
| 5 | 24,800 | 31,000 | 28,520 |
| 6 | 28,400 | 35,500 | 32,660 |
| 7 | 32,000 | 40,000 | 36,800 |
| 8 | 35,600 | 44,500 | 40,940 |
| For each additional person, add | 3,600 | 4,500 | 4,140 |
4 comments:
I think the employer sponsored health insurance market has spoiled the way people see health insurance in general. It's a big write off for companies, and it's also an incentive to attract and keep employees. So employer sponsored coverage is almost always gold plated. Very low deductibles, small copays, chiropractic, etc.
People are used to thinking of health insurance like they think of a plasma TV. Buy it, take it home and use it. When they become self-employed or don't have the option for employer sponsored health insurance, healthy people don't see a need to use it right now so they don't buy it. Save your money for things you can use right now, like the plasma TV -right?
A rare few healthy people are smart enough to see health insurance for the product it is... insurance. A good portion of the people actually getting the individual insurance are getting it because they see an immediate benefit due to a health condition. Even then, we hear this at least once a day:
"I only spend $1,000 a year on my condition. If I have a $2,000 deductible, what's the point of having insurance?"
Jay,
Thanks for getting back to me. Sorry I took so long to respond.
If I understand you correctly, you suggest that
1. Incentives in the system (tax breaks and employer contributions) still make employer-based insurance an attractive deal for employers and employees, while simultaneously masking the true costs of health insurance to employees (because of those employer tax breaks and employer subsidies).
2. In turn, this drives up the expectations of end-consumers (e.g., they expect a $100 per month for a gold-plated plan), regardless of the market they are in (group or individual), which in turn appears to make health insurance less desirable at its full, unsubsidized prices (especially with added cost-sharing).
3. Add to this the fact that, despite all the recent attention to health insurance coverage in the media and political campaigns, consumers still simply view health insurance as no different from any another commodity, thereby making it something purchase based on perceptions of value and immediate need.
4. Finally, because the perception of value for health insurance is low for some folks (based on some or all of the above reasons), your example ("I only spend $1,000 a year on my condition. If I have a $2,000 deductible, what's the point of having insurance?") may not be atypical for folks who might otherwise be able to afford insurance in the individual market, but choose not to.
Did I get that right?
Jay,
I should have added: I definitely agree with your viewpoint on this.
Exactly. Very well put!
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