Is the Individual Market More Than a Bridge Market? An Analysis of Disenrollment Decisions

Reform of the Individual Insurance Market in New Jersey: Lessons for the Affordable Care Act

The individual health insurance market has played a small but important role in providing coverage to those without access to group insurance or public programs. With implementation of the Affordable Care Act (ACA), the individual market has attained a more prominent role. However, achieving accessible and affordable coverage in this market is a long-standing challenge, in large part due to the threat of adverse risk selection. New Jersey pursued comprehensive reforms beginning in the 1990s to achieve a stable, accessible, and affordable individual market. We review how adverse risk selection can pose a challenge to achieving such objectives in the individual health insurance market. We follow this discussion by describing the experience of New Jersey through three rounds of legislative reform and through the first year of the implementation of the ACA coverage provisions. While the New Jersey reforms did not require individuals to purchase coverage, its experiences with direct and indirect market subsidies and regulations guiding plan design, issuance, and rating have important implications for how the ACA may achieve its coverage goals in the absence of the controversial individual purchase mandate.

Does High-Risk Pool Coverage Meet the Needs of People at Risk for Disability?

State high-risk insurance pools serve people denied coverage because of pre-existing conditions. With benefit plans modeled on the individual market, these pools generally require higher out-of-pocket expenditures and provide fewer benefits than employer-sponsored plans, while their beneficiaries have very intensive needs. We profile 416 working adults enrolled in a state high-risk pool and document their health conditions and health care utilization. High-risk pool and federal employee benefits are compared to assess insurance structure and implications for health and disability outcomes.

The role of product design in consumers' choices in the individual insurance market

OBJECTIVE

To evaluate the role of health plan benefit design and price on consumers' decisions to purchase health insurance in the nongroup market and their choice of plan.

DATA SOURCES AND STUDY SETTING

Administrative data from the three largest nongroup insurers in California and survey data about those insured in the nongroup market and the uninsured in California.

STUDY DESIGN

We fit a nested logit model to examine the effects of plan characteristics on consumer choice while accounting for substitutability among certain groups of products.

PRINCIPAL FINDINGS

Product choice is quite sensitive to price. A 10 percent decrease in the price of a product would increase its market share by about 20 percent. However, a 10 percent decrease in prices of all products would only increase overall market participation by about 4 percent. Changes in the generosity of coverage will also affect product choice, but have only small effects on overall participation. A 20 percent decrease in the deductible or maximum out-of-pocket payment of all plans would increase participation by about 0.3-0.5 percent. Perceived information search costs and other nonprice barriers have substantial effects on purchase of nongroup coverage.

CONCLUSIONS

Modest subsidies will have small effects on purchase in the nongroup market. New product designs with higher deductibles are likely to be more attractive to healthy purchasers, but the new benefit designs are likely to have only small effects on market participation. In contrast, consumer education efforts have a role to play in helping to expand coverage.

How much risk pooling is there in the individual insurance market?

OBJECTIVE

To examine how much pooling of risks occurs among potential purchasers in the individual market, how much pooling occurs among those who purchase coverage, and whether there is greater pooling among longer-term enrollees.

DATA SOURCES

The data are administrative records for enrollees in individual insurance plans in California in 2001, and from a survey of Californians enrolled in the individual insurance market and the uninsured.

STUDY DESIGN

Logit models were estimated for 5 health outcome measures to compare the insured and uninsured after adjusting for other factors that affect insurance status and health. Multivariate models were also estimated to explore the relationship between health and three measures of pooling in the market: plan type, pricing tier, and the actuarially adjusted premium paid by the enrollee.

PRINCIPAL FINDINGS

Those who purchase individual health insurance are in better health than those who remain uninsured. On the other hand, a large share of people with health problems does obtain individual insurance. The distribution of subscribers across plan type and pricing tier varies with their health status. Those in poor health are less likely to purchase low benefit plans. There is less separation of risks for those who become sick after enrollment based on the measure of pricing tier. The distribution of subscribers across plan type for those who have health problems at enrollment and those who become sick differs, but so does the distribution of those who become sick and those who remain healthy.

CONCLUSIONS

Despite small differences among the healthy and sick, our results support the conclusion that there is considerable risk pooling in the individual market. To some extent, this pooling occurs because underwriting happens at the time people enroll and there is greater pooling among those who become sick than those who enroll sick. Our results however suggest that health savings accounts may further fragment the market.