Medical Underwriting Makes Individual Health Insurance Much Less Expensive Than Group Coverage

A recent article published by Zane Benefits (a popular HRA provider) draws attention to the dramatic difference in price between group health insurance and individual health insurance policies.  They note that in the 45 states where individual health insurance is medically underwritten (including Colorado), it is roughly half the price of comparable group health insurance.  Of course, the policies can’t really be compared apples-to-apples, since in many states there are mandates that are applied to one type of policy but not the other.  For example, mental health parity laws apply to large groups but not small groups or individual health insurance policies.   Maternity coverage is another a good example – in a lot of states, individual health insurance does not include coverage for maternity.  In Colorado, until the beginning of 2011, individual health insurance policies did not have to cover maternity – and very few of them did.  But group policies had to include maternity coverage, which is a relatively significant difference in coverage.  For the past year and a half though, new individual health insurance policies (and renewing policies) issued in Colorado have included maternity coverage, just like group plans.  Incidentally, the difference in premiums between group and individual policies in Colorado has not been significantly impacted by this change.  [The addition of maternity coverage on individual health insurance policies in 2011 was created by Colorado legislation.  But starting in 2014, all individual policies sold in the US will have to include maternity coverage, per the ACA’s essential health benefits rule.]

But although there are differences between group and individual coverage that can account for some of the price variation, by far the biggest factor is medical underwriting.  The Zane Benefits article points out that 80% of healthcare costs come from 20% of the population – individuals with serious, ongoing health conditions.  Group health insurance is required to accept all eligible employees, but individual health insurance carriers use medical underwriting to eliminate the sickest applicants from the pool of insured members (70 % – 90% of applicants in the individual market are accepted and offered a policy – there is quite a bit of variation in underwriting guidelines from one carrier to another and from one state to another).  This means that individual policies are covering people who are generally healthier than the average of the entire population.  And that translates to lower healthcare costs in the individual market.

The downside to all of this is the predicament that people find themselves in if they are not eligible for group coverage and are in the segment of the population that is unable to qualify for individual health insurance.  CoverColorado has been filling that need in Colorado for almost two decades, but in some states there was no high risk pool option until the ACA was signed into law.  Although the pre-existing condition insurance plan (PCIP) is not a perfect solution (there are funding concerns, and a person has to be uninsured for at least six months in order to be eligible), it does at least guarantee that all 50 states have guaranteed issue individual coverage available between now and 2014 when all policies will become guaranteed issue – assuming the ACA stays in place.

The price of individual health insurance will likely climb in 2014 when the policies become guaranteed issue.  But this increase will probably be tempered by the fact that far more people will seek individual coverage due to the individual mandate.  And federal subsidies will be available to help the majority of US households pay for health insurance.

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for,, Verywell, Spark by ADP, and Boost by ADP, and Gusto. Follow on twitter and facebook.


  1. Jim Sugden says


    The disparity in pricing between individual and group coverage has left many Colorado brokers wrestling with a complex ethical dilema. Some small employers and thier brokers are pursuing premium savings by dumping their group health plans and compelling employees to obtain fully underwritten individual coverage. Those that cannot qualify are then shuttled off to CoverColorado; straining the resources of that publicly funded safety net.

    The questions are…. Is it fair to impose more expensive coverage on the unhealthy/unfortunate few? Is it ethical to allow some employers to use publicly funded CoverColorado as an avenue for corporate premium savings? Is the exodus of healthly participants going to kill the small group market next month or next year?

    Currrent Colorado law and insurance regulation seeks to slow the small group exodus but has not been entirely successful. PPACA may or may not stand. Only a complete rethinking of the individual and small group markets in Colorado will provide the solution needed to stabilize both markets.

  2. Thanks for the thoughtful – as always – reply. I agree that it’s a difficult situation with no easy answers, or at least no answers that will please everyone.

    I wrote an article last fall about how the law that allows employers to fund individual health insurance for employees (Colorado Senate Bill 19) has a clause in it that prevents carriers from issuing individual health insurance if an employer who has offered a group plan within the past 12 months is going to be paying for the policy (/blog1/2011/11/04/employer-reimbursement-of-premiums-causing-applicants-to-be-declined/).

    In addition, Final Agency Order O-11-064 from the Division of Insurance has wording to try to prevent employers from moving their healthy employees onto individual plans while relying on CoverColorado for their employees with pre-existing conditions (/blog1/2011/03/15/using-hra-funds-to-purchase-individual-health-insurance/). I’m sure you’re aware of these efforts by regulators to try to prevent a breakdown of the small group health insurance market, but I wanted to include those links for the benefit of other readers too. Although those regulations have probably slowed the rate at which small group policies are being dropped, there is still cause for concern.

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