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The individual insurance market is pretty awful, but we can fix it

Buying individual health insurance in the US is the worst way to get coverage and in myriad ways.  Here’s two.

It can be really, really expensive. 

Most Americans are fortunate to have health insurance through their employer, with over half of Californians receiving coverage through their workplace.  This population greatly benefits from three things:

  1. PRE-EXISTING CONDITIONS DON’T MATTER: A group health plan at your job cannot refuse to cover you if you have a pre-existing condition. Your medical history has no bearing on how much you pay for health insurance. Those with illnesses or chronic conditions are not financially discriminated against.
  2. GROUP DISCOUNT, YAY: Because your employer purchases a group plan on the employees’ behalf, you benefit from bulk purchasing, which brings down everyone’s premium costs. See: Costco.
  3. FINANCIAL HELP: Many employers that offer coverage also help you pay for your monthly premium costs.  Employers choose to do this not only to attract high quality employees, but to benefit from very attractive tax deductions. Only self-employed individuals get a somewhat comparable tax break when they buy individual insurance.

Many with employer-sponsored insurance think their health care is expensive. But if you had to try to purchase coverage for yourself and your family, it becomes prohibitively expensive.  Between 2004 and 2007, a study found that 57% of adults who tried to purchase individual insurance reported that it was very difficult or impossible to find a plan they could afford. A staggering 73% of those adults did not purchase a plan, most often because the premium was too high.

How high?  Of the adults who purchased individual insurance, 64% of adults spent at least $3,000 annually on premiums. Nearly half of these adults spent at least $6,000 annually ($500/month) for one person’s coverage. And 18% spent $8,000 or more ($667/month) for one person’s coverage.  This is before we even factor in deductibles, co-pays and other bills you pay once you actually visit the doctor.  Compare that to only 20% of those with employer-sponsored insurance who paid more than $3,000 on premiums.

The percentage of adults that paid more than $3,000/year for employer coverage is almost equal to the percentage of adults that paid more than $8,000/year through private individual coverage.  Let that sink in for a second. I’ll wait.

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So why is this? Individual insurance is costly because of the same reasons why employment-sponsored coverage is cheaper:

  1. PRE-EXISTING CONDITIONS MATTER: As of right now, adults are discriminated against based on their medical history.  A pre-existing condition can mean sky-high premiums, or no offer of coverage at all.
  2. NO BULK PURCHASING: Because you are purchasing insurance on your own, you don’t benefit from any bulk purchasing that an employer can usually do on your behalf.
  3. NO FINANCIAL HELP, EITHER: Individuals and families are responsible for ALL OF THE COST, and generally do not benefit from the tax savings that employers do.

We want to encourage adults to purchase health insurance because it is the responsible thing to do, and yet, the health care system does very little for those who try to purchase insurance on their own.  The ACA begins to level the playing field between employer coverage and individual insurance, so individuals seeking insurance also benefit from the cost-lowering perks that employers get.

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And yet it doesn’t cover a lot of benefits.

Private individual insurance plans tend to have shoddier benefits, with less-comprehensive coverage. For example, adults with individual insurance are less likely to be covered for prescription medication, mental health, maternity care or dental care.  Adults in the individual insurance market also report higher rates of benefit restriction and problems with their coverage, including limits on what their health plan will pay for and having medical bills that are not covered by their plan.

In California, the average employer plan covers 80% of an individual’s expected medical costs. The average individual plan covers 55% of an individual’s expected medical costs.  It’s no surprise that those with individual insurance report significantly higher rates of dissatisfaction with their plan than those with employer coverage.  And it isn’t too broad of a statement to say that pre-reform, private individual insurance is pretty bad.  Compared to employer-sponsored insurance, those with individual insurance on average pay more for a worse product; the umbrella of coverage has gotten more expensive but the holes in it have only gotten larger. The ACA establishes a baseline of benefits that must be covered by all insurance plans sold post-reform, including hospital care, emergency services, maternity coverage, mental health benefits, lab services, prescription drugs, preventive care (without co-pays), and pediatric dental/vision care.

Those who imply or outright claim that the health care system is working have never borne the misfortune of being uninsured and unhealthy at the same time; never had to navigate the mess that is the private individual market; or have been some combination of lucky, healthy, and relatively affluent.  What’s the point of having individual insurance if it’s still so bad that one-third of adults with this kind of insurance have medical bill/debt problems?

There has been much attention paid to President Obama’s overstated promise that those who liked their insurance can keep it.  It’s true that some Americans’ current individual insurance plans are not compliant with the ACA. They weren’t guaranteed issue; they weren’t guaranteed renewal; they had pre-existing condition exclusions and they had narrow benefits and high deductibles (high deductible plans, whether it’s through your employer or in the individual market, are correlated with higher out-of-pocket costs overall than plans with lower deductibles). Some have annual and lifetime benefit caps, so health plans could withhold further treatment when you needed it most. Others spent a larger share of your money on the insurer’s administrative costs than they did on your health benefits.

WHAT

But let’s have Ezra Klein from the Washington Post take over:

Obama was wrong to promise that everyone who liked their insurance could keep it. For a small minority of Americans, that flatly isn’t true. But the real sin would’ve been leaving the individual insurance market alone.

Consumer Reports would like to chime in, too:

Individual insurance is a nightmare for consumers: more costly than the equivalent job-based coverage, and for those in less-than-perfect health, unaffordable at best and unavailable at worst. Moreover, the lack of effective consumer protections in most states allows insurers to sell plans with ‘affordable’ premiums whose skimpy coverage can leave people who get very sick with the added burden of ruinous medical debt.

If we polled for such things, the private individual insurance market’s approval ratings would be comically low.  The ACA provides many of the regulations that would greatly help the uninsured and underinsured, and while there have been some problems with the rollout of the law, it begins to fix an inherently flawed system.  If you don’t believe me, you should take Lucien’s word for it.

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