Nongroup Health Insurance Gary Claxton Vice President Kaiser Family Foundation

What Is the Nongroup Market?  People purchasing coverage directly from insurer  People purchasing coverage through discretionary associations

Who Uses the Nongroup Market  Generally it is a residual market People not offered coverage at work Self-employed (varies by state) People not working and not eligible for public coverage People between jobs Early retirees Sometimes people who cannot afford contribution for ESI  Most with access to ESI take it

Percent of Nonelderly With Direct Purchase Health Insurance, Current Population Survey, Census Bureau, Current Population Survey (CPS) Annual Social and Economic Supplement, Adjusted figures: Revised CPS data from KCMU/Urban Institute analysis of ASEC Supplement to the CPS.

Percent of Nonelderly With Direct Purchase Health Insurance, Medical Expenditure Panel Survey, Kaiser Family Foundation analysis of Medical Expenditure Panel Survey (HC), 1999, 2001, 2003, Nongroup includes people with nongroup, self-employed group of one and private other group coverage. Public removed excludes people with 6 months or more of Medicaid or Medicare.

How Nongroup Coverage Differs from ESI  Tax treatment/subsidy  Adverse selection Group v. individual underwriting  Administrative costs Underwriting and marketing cost Persistency Credit/other  Premiums Tend to be lower (for less coverage) Vary by factors  Benefits Higher cost sharing Limitations  Regulation more at state level

Adverse Selection / Underwriting  Applications Collect health history Consent to review medical history  Accept/Deny Accept at substandard rate Accept with coverage limit  Preexisting conditions generally excluded even if accepted Look back quite far in some states Problem if switching non-group coverage  Discuss rescissions later  High Risk Pools

Premiums  Tend to be lower than total cost of ESI  Vary by age, location, health and other factors  AHIP survey 2006/2007 Range average individual premium  $1,359 (18-24) to $5,090 (60-64) Range average family premium  $2,850 (18-24) to $9,201 (60-64)  Large variation based on deductible and other factors

Benefits  Benefits generally leaner than ESI  AHIP survey average PPO/POS deductible Individual: $1,747 Family: $2,753  AHIP survey average HSA/MSA deductible Individual: $2,905 Family: $5,329  Limitations Eg: Maternity, mental health, prescription drugs, service and visit limits

 All diagnoses or treatments of mental disorders, as defined in the policy, including substance abuse, are limited to a lifetime maximum benefit of $3,000 (not covered in Saver Plans, subject to state variations). Covered expenses for outpatient diagnosis or treatment of mental disorders are further limited to $50 per visit. As with any other illness or injury, inpatient care that is primarily for educational or rehabilitative care is not covered.

Regulation  Nongroup regulated primarily by states  Variation in rules Acceptance and types of limits Rating Benefits and terms  HIPAA Regulates terminations and renewals Guaranteed acceptance for a limited group  High Risk Pools

Policy Issues  Nongroup market has the advantage of letting people shop for what they want Size and structure limit what is available Comparing benefits and terms can be difficult (People unaware of potential costs and service use of different illnesses)  Access to coverage is limited by health and risk Risk pools are somewhat costly alternative Preexisting condition exclusions present risk that is hard to evaluate

Policy Issues  Renewability risks (difficult to know) Closed blocks of business Durational rates  Cost-sharing impacts on low and moderate income families  Benefit Mandates Cost  Current issue with rescissions  Federal or state regulation

Small Group Coverage  Adverse selection Self-employed and very small groups  Premiums and Benefits Small group premiums similar to large groups But higher deductibles (not as high as NG)  Regulation State and Federal regulation  Accept all groups; no health status adjustments for worker contributions, but health affects group rate  Rating bands  Policy Issues Associations, self-funded pools Combine small group with nongroup