Individual Market Explained

Who buys insurance on the individual market?

People who don’t get health coverage through their employer or the government sometimes buy coverage directly from insurers on the individual, or non-group, market. While estimates vary, census data show that in 2007, about 14.5 million people had individual insurance, approximately 5 percent of the population.

Many people with individual insurance are self-employed or work in small companies. A 2007 Commonwealth Fund survey found that 36 percent of respondents with individual insurance were unemployed. Of those who had jobs, about three-quarters were self-employed or worked in firms with fewer than 20 workers. Some people buy individual policies while they are between jobs.

Nearly half of the people with individual insurance are between the ages of 50 and 64, while another 19 percent are between 19 and 29.

What is the current state of the individual market?

Individual insurance is regulated by state governments, so prices and rules vary, depending on the state. Generally, insurers evaluate the medical history, age and other factors of the applicant or family to determine whether to provide coverage and, if so, to calculate a premium.

Only a handful of states — including Maine, Massachusetts, New Jersey, New York, Washington and Vermont — have rules in place limiting carriers’ ability to deny insurance based on pre-existing medical conditions.
In other states, it is often difficult for people with health problems to obtain health insurance at an affordable price — or even at all. The Commonwealth Fund report estimated that about half of adults who tried to buy individual plans during a three-year period found it difficult or impossible to find a plan to fit their needs. Thirty-four states have set up high-risk pools as an insurance alternative for people with pre-existing conditions.

What’s the average cost of individual plans and what do they offer the consumer?

Premiums and deductibles tend to be higher in the individual market than in employer-provided plans, and the coverage is usually less comprehensive. The enrollee picks up the entire tab, rather than sharing the cost with an employer.

The Commonwealth Fund survey found that 64 percent of those with individual coverage spent $3,000 or more on annual premium costs. Almost half spent at least $6,000 per year and nearly 20 percent spent at least $8,000 annually.

How will the reform proposals affect individual insurance?

The Democratic overhaul proposals would have a big impact on the individual market. They would require most people to have coverage, which is likely to funnel millions of people into the individual market. In addition, some lower-income people who now have individual policies might become eligible for an expanded Medicaid program, the state-federal health program for the poor and disabled.

Several of the proposals also require that employers provide coverage, which could mean some people who now have to buy their own insurance would get group coverage at work.

Under the plans, the government would provide subsidies for low- and moderate-income people buying individual policies on newly created insurance “exchanges.” But lawmakers, facing tremendous pressure to lower the cost of the health care legislation, might pare back the subsidies, reducing the number of moderate-income Americans who would be eligible. And some people who receive subsidies might still find them insufficient to buy insurance.

The proposals would also bar insurers from excluding people from coverage or charging more due to health conditions.

Sources:

Employee Benefit Research Institute: Sources of Health Insurance and Characteristics of the
Uninsured: Analysis of the March 2008 Current Population Survey
 (.pdf)

Failure to Protect: Why the Individual Insurance Market Is Not a Viable Option for Most U.S. Families

The Inefficient Individual Health Insurance Market

Update on Individual Health Insurance, August 2004

Kaiser Family Foundation: State Health Facts Online

Side-by-Side Comparison of Major Health Care Reform Proposals

The Alliance for Health Reform

How Private Health Coverage Works: A Primer-?2008 Update