Choice & Competition Boost Individual Health Insurance

TA | August 19, 2008

Health insurance buyers are beginning to notice the effects of increased choices and greater competition in the individual health insurance. Individual health insurance coverage - as opposed to employer-provided coverage has been the backbone of the most popular health care reform proposals. Industry experts expect the number of individual health insurance policies to quadruple in next five years while the number of people covered under employer-provided insurance continues its long term decline. Yet many people are skeptical of the ability of consumers to navigate these less regulated insurance markets that allow a wide range of choice and levels of coverage. In the past, some people did not understand the coverage they purchased and did not have access to full information about their available choices. MedSave.com believes that the advantages offered through the Internet, including independent product reviews and unbiased third party enrollment support services make the process much easier and safer for consumers today than in the past. The Hartford Currant (8/19/08) wrote "consumers in Connecticut and around the nation are finding one good sign in the much-maligned health care system - growing competition in the sale of individual policies".  Increased competition helps some people but not everyone.

Lower Price

Since January 2007, most of the individual health insurance price changes announced on the MedSave.com "News" page were premium decreases. It seemed at the time of each announcement that each of these individual insurance plans had bucked the overall national trend of increasing overall medical costs. Now, with hindsight, we see that these cost reductions were part of a strategy by insurers to make health insurance more affordable to a wider range of customers. The increased competition in low priced health insurance led to a surprisingly wide range of products with an equally wide range of premium prices. Insurer accomplished this price reduction by eliminating certain benefits and setting maximum amounts of coverage. This trend is not unique to health insurance; the American auto insurance market has seen a similar trend toward lower cost policies with reduced benefits over the past several years.

Aside from these recent indistry trends, individual insurance has always been priced lower than group health coverage simply because the benefits that individuals prefer to purchase are lower than employers tend to purchase for employees. Employers typically pay more than $800 per month per employee, for example, for health coverage. MedSave.com reports that individuals who buy their own coverage pay less than $300 per month. It is not because individual insurance is a better deal but rather because individuals purchase less coverage when using their own money.

Early retirees are likely to learn the disadvantages of age-based pricing typically used in individual medical insurance. Although insurance companies use age to price group insurance, the employer is offered an age-blended rate to avoid discrimination based on age. The result is that group insurance is less expensive for a 62-64 year old than comparable individual insurance. MedSave.com encourages health individuals in this age group to consider quality of protection above price when choosing insurance. In many instances, for example, it makes sense to purchase a high deductible policy from an excellent carrier like Celtic Insurance that a managed care plan with a lower deductible and more up-front benefits.

More Choices

Young people who generally do not consider the risk of catastrophic illness to be a financial priority and therefore tend to be unimpressed with traditional major medical insurance plans.  Kaisernetwork.org refers to these uninsured people in their 20s and 30s who often believe that they do not require health insurance as the "young invincibles". They tend to find better value in the new health plans with "up-front" wellness benefits like Celtic Basic, Core Health and Value Benefits. The number of health insurance plans targeting this age group is expected to continue to grow.

Some individual health insurance companies now promote high deductible polices that meet federal Health Savings Account guidelines. Even devout managed care companies like Aetna promote HSAs even though the consumer-directed approach of the HSA appears to be in direct conflict with the cost containment strategy of a managed health care plan. The verdict is not in on Health Savings Accounts. Some owners love them; others find the management of the separate savings account and coordinating the account with the insurance to be difficult.

Consumer Reputation

Insurance companies that issue individual insurance enjoy a more favorable public opinion now than in the past. Companies like Aetna and Celtic Insurance have always enjoyed a stellar public image. In recent years other companies like Golden Rule Insurance, previously known primarily as a low cost insurer, have significantly reduced customer complaint ratios throughout the country. In contrast, some of the nations largest providers of group health insurance are finding a more difficult time keeping customers happy.

Challenges Continue

The health insurance industry faces some difficult marketing challenges in educating buyers about the products available in the 21st century. It seems that many people largely misunderstand the basic principles of individual insurance. Many believe that health insurance company profits are excessive - perhaps above 30% of premiums. In fact the profit margin in health insurance industry is lower than other industries at less than 4% of premium in most years.

Many people still believe that if they have a serious medical condition then individual health insurance is not an option. Yet a majority of the new health plans reviewed by MedSave.com are issued on a universal basis (meaning they are available to all at standard rates) without regard to the applicant's health history. Insurers quietly adapted this change simply by excluding payment for pre-existing medical conditions during the first 12 months of the policy. Those who need immediate takeover coverage when changing insurance have access to either COBRA or HIPAA coverage.

Among insurance companies that do decline applications based on an individual's health, only one in 10 applications are rejected, according to a 2007 study by America's Health Insurance Plans. In many of these cases, a rejection from commercial is required by law before the applicant becomes eligible for a cost-subsidized state insurance plan. One prominent preferred risk health insurance company, Celtic Insurance has avoided the need to reject applications by simply allowing applicants to withdraw their application during the underwriting process. This help avoid the negatives associated with being declined for coverage. Many of the highest quality low cost health insurance plans, including the 6 and 12 month short term and three year short term medical plans do not accept an applicant who has previously been declined for coverage by another insurer.

The strongest indication of the challenges ahead is the fact that despite the introduction and marketing of this broad range of new more affordable insurance products, the number of people who have not elected health insurance continues to increase each year. Legal obstacles continue to prevent the spread of low cost health plans in some states. Massachusetts residents recently learned that some of their qualified low cost health insurance will not meet the state's requirements to avoid a tax penalty in 2009. Some are left to wonder whether they should spend more each month on health insurance or simply keep their current insurance and pay the $900 tax penalty. Massachusetts is currently the only state that requires its residents to have health insurance.

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