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.