Individually purchased health insurance

Last updated

In the United States, individually purchased health insurance is health insurance purchased directly by individuals, and not those provided through employers. Self-employed individuals receive a tax deduction for their health insurance and can buy health insurance with additional tax benefits. According to the US Census Bureau, about 9% of Americans are covered under individual health insurance. [1] In the individual market, consumers pay the entire premium without an employer contribution, [2] [3] and most do not receive any tax benefit. [4] The range of products available is similar to those provided through employers. However, average out-of-pocket spending is higher in the individual market, with higher deductibles, co-payments and other cost-sharing provisions. [5] [2] Major medical is the most commonly purchased form of individual health insurance. [6]

Contents

Economics

Premiums can vary significantly by age. [2] [7] [8] In states that allow medical underwriting, an individual's health information may be used in determining whether to cover the individual and the premium to be paid. [2] However, under the Patient Protection and Affordable Care Act, effective since 2014, insurers are prohibited from discriminating against or charging higher rates for any individuals based on pre-existing medical conditions. [9] [10] For individuals who pass individual medical underwriting where it is used, the average premiums they pay are lower than the average paid for employer-sponsored coverage (this comparison is based on the entire premium for employer-sponsored coverage, including both the employee and employer contributions). [2] [4] [11] Factors that may contribute to this include: differences in age; less generous coverage in the individual market (higher beneficiary cost sharing); and a tendency for individual consumers to only buy benefits that they expect to need and use while group coverage may provide some benefits that most beneficiaries do not use. [2] [4] Individual policyholders are also more likely to report being in excellent health than are people covered by employer-sponsored health insurance, which may be a contributing factor. [11] Premiums in the individual market rose less rapidly over the period 2002-2005 than did out-of-pocket premiums in the employer-sponsored market (17.8% versus 34.4%). The increase was larger for family policies than for single policies (25.3% for family policies; the increase for single policies was not statistically significant). These comparisons did not adjust for changes in benefit levels. [3]

Research confirms that the individual health insurance market is sensitive to price. [12] Estimates of demand elasticity in this market vary, but generally fall in the range of -0.3 to -0.1. It appears that price sensitivity varies among population subgroups and is generally higher for younger individuals and lower income individuals. [13] One study found that among individuals who lack other sources of health coverage, the percentage purchasing individual insurance increases steadily with income. However, even among those with incomes four times the federal poverty level, only about a fourth buy individual coverage. The self-employed, who can tax-deduct their premiums, are more likely to purchase than other individuals. The researchers concluded that affordability appears to be a key barrier to coverage in this market, and that any premium subsidies would likely have to be substantial to be effective. The researchers note that other factors such as health status and the complexity of the market can also affect the purchase of individual health insurance, but conclude that they are unlikely to be the primary drivers of low coverage rates. [14]

Many states allow medical underwriting of applicants for individually purchased health insurance. An estimated 5 million of those without health insurance are considered "uninsurable" because of pre-existing conditions. [15] A number of proposals have been advanced to limit the effect of underwriting on consumers and improve access to coverage. Each has its own advantages and limitations. [16] One 2008 study found that people of average health are least likely to become uninsured if they have large group health coverage, more likely to become uninsured if they have small group coverage, and most likely to become uninsured if they have individual health insurance. But, "for people in poor or fair health, the chances of losing coverage are much greater for people who had small-group insurance than for those who had individual insurance." The authors attribute these results to the combination in the individual market of high costs and guaranteed renewability of coverage. Individual coverage costs more if it is purchased after a person becomes unhealthy, but "provides better protection (compared to group insurance) against high premiums for already individually insured people who become high risk." Healthy individuals are more likely to drop individual coverage than less-expensive, subsidized employment-based coverage, but group coverage leaves them "more vulnerable to dropping or losing any and all coverage than does individual insurance" if they become seriously ill. [17]

In August 2008 the Hartford Courant reported that competition was increasing in the individual health insurance market, with more insurers entering the market, an increased variety of products, and a broader spread of prices. [18]

Regulation

Individual health insurance is primarily regulated at the state level, consistent with the McCarran-Ferguson Act. Model acts and regulations promulgated by the National Association of Insurance Commissioners (NAIC) provide some degree of uniformity state to state. These models do not have the force of law and have no effect unless they are adopted by a state. They are, however, used as guides by most states, and some states adopt them with little or no change. The primary NAIC models affecting the individual health insurance market are:

All of these models have been implemented in one form or another by most states.

Federal laws affecting individual health insurance include:

See also

Related Research Articles

<span class="mw-page-title-main">Insurance</span> Equitable transfer of the risk of a loss, from one entity to another in exchange for payment

Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.

<span class="mw-page-title-main">Life insurance</span> Type of contract

Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of an insured person. Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The policyholder typically pays a premium, either regularly or as one lump sum. The benefits may include other expenses, such as funeral expenses.

Health insurance or medical insurance is a type of insurance that covers the whole or a part of the risk of a person incurring medical expenses. As with other types of insurance, risk is shared among many individuals. By estimating the overall risk of health risk and health system expenses over the risk pool, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to provide the money to pay for the health care benefits specified in the insurance agreement. The benefit is administered by a central organization, such as a government agency, private business, or not-for-profit entity.

Health care prices in the United States of America describe market and non-market factors that determine pricing, along with possible causes as to why prices are higher than in other countries.

<span class="mw-page-title-main">Massachusetts health care reform</span>

The Massachusetts health care reform, commonly referred to as Romneycare, was a healthcare reform law passed in 2006 and signed into law by Governor Mitt Romney with the aim of providing health insurance to nearly all of the residents of the Commonwealth of Massachusetts.

Death spiral is a condition where the structure of insurance plans leads to premiums rapidly increasing as a result of changes in the covered population. It is the result of adverse selection in insurance policies in which lower risk policy holders choose to change policies or be uninsured. The result is that costs supposedly covered by insurance are pushed back onto the insured.

Medical underwriting is a health insurance term referring to the use of medical or health information in the evaluation of an applicant for coverage, typically for life or health insurance. As part of the underwriting process, an individual's health information may be used in making two decisions: whether to offer or deny coverage and what premium rate to set for the policy. The two most common methods of medical underwriting are known as moratorium underwriting, a relatively simple process, and full medical underwriting, a more indepth analysis of a client's health information. The use of medical underwriting may be restricted by law in certain insurance markets. If allowed, the criteria used should be objective, clearly related to the likely cost of providing coverage, practical to administer, consistent with applicable law, and designed to protect the long-term viability of the insurance system.

Self-funded health care, also known as Administrative Services Only (ASO), is a self insurance arrangement in the United States whereby an employer provides health or disability benefits to employees using the company's own funds. This is different from fully insured plans where the employer contracts an insurance company to cover the employees and dependents.

The Healthy Americans Act(HAA), also known as the Wyden-Bennett Act, is a Senate bill that had proposed to improve health care in the United States, with changes that included the establishment of universal health care. It would transition away from employer-provided health insurance, to employer-subsidized insurance, having instead individuals choose their health care plan from state-approved private insurers. It sought to make the cost of health insurance more transparent to consumers, with the expectation being that this would increase market pressures to drive health insurance costs down. The proposal created a system that would be paid for by both public and private contributions. It would establish Healthy Americans Private Insurance Plans (HAPIs) and require those who do not already have health insurance coverage, and who do not oppose health insurance on religious grounds, to enroll themselves and their children in a HAPI. According to its sponsors, it would guarantee universal, affordable, comprehensive, portable, high-quality, private health coverage that is as good or better than Members of Congress have today; A 2008 preliminary analysis by the Congressional Budget Office concluded it would be "essentially" self-financing in the first year that it was fully implemented.

In the United States, health insurance helps pay for medical expenses through privately purchased insurance, social insurance, or a social welfare program funded by the government. Synonyms for this usage include "health coverage", "health care coverage", and "health benefits". In a more technical sense, the term "health insurance" is used to describe any form of insurance providing protection against the costs of medical services. This usage includes both private insurance programs and social insurance programs such as Medicare, which pools resources and spreads the financial risk associated with major medical expenses across the entire population to protect everyone, as well as social welfare programs like Medicaid and the Children's Health Insurance Program, which both provide assistance to people who cannot afford health coverage.

Healthcare reform in the United States has a long history. Reforms have often been proposed but have rarely been accomplished. In 2010, landmark reform was passed through two federal statutes: the Patient Protection and Affordable Care Act (PPACA), signed March 23, 2010, and the Health Care and Education Reconciliation Act of 2010, which amended the PPACA and became law on March 30, 2010.

<span class="mw-page-title-main">Health insurance coverage in the United States</span> Overview of the coverage of health insurances in the United States

In the United States, health insurance coverage is provided by several public and private sources. During 2019, the U.S. population overall was approximately 330 million, with 59 million people 65 years of age and over covered by the federal Medicare program. The 273 million non-institutionalized persons under age 65 either obtained their coverage from employer-based or non-employer based sources, or were uninsured. During the year 2019, 89% of the non-institutionalized population had health insurance coverage. Separately, approximately 12 million military personnel received coverage through the Veteran's Administration and Military Health System.

In the United States, health insurance marketplaces, also called health exchanges, are organizations in each state through which people can purchase health insurance. People can purchase health insurance that complies with the Patient Protection and Affordable Care Act at ACA health exchanges, where they can choose from a range of government-regulated and standardized health care plans offered by the insurers participating in the exchange.

The Empowering Patients First Act is legislation sponsored by Rep. Tom Price, first introduced as H.R. 3400 in the 111th Congress. The bill was initially intended to be a Republican alternative to the America's Affordable Health Choices Act of 2009, but has since been positioned as a potential replacement to the Patient Protection and Affordable Care Act (PPACA). The bill was introduced in the 112th Congress as H.R. 3000, and in the 113th Congress as H.R. 2300. As of October 2014, the bill has 58 cosponsors. An identical version of the bill has been introduced in the Senate by Senator John McCain as S. 1851.

A health insurance mandate is either an employer or individual mandate to obtain private health insurance instead of a national health insurance plan.

There were a number of different health care reforms proposed during the Obama administration. Key reforms address cost and coverage and include obesity, prevention and treatment of chronic conditions, defensive medicine or tort reform, incentives that reward more care instead of better care, redundant payment systems, tax policy, rationing, a shortage of doctors and nurses, intervention vs. hospice, fraud, and use of imaging technology, among others.

<span class="mw-page-title-main">Affordable Care Act</span> U.S. federal statute also known as Obamacare

The Affordable Care Act (ACA), formally known as the Patient Protection and Affordable Care Act (PPACA) and colloquially known as Obamacare, is a landmark U.S. federal statute enacted by the 111th United States Congress and signed into law by President Barack Obama on March 23, 2010. Together with the Health Care and Education Reconciliation Act of 2010 amendment, it represents the U.S. healthcare system's most significant regulatory overhaul and expansion of coverage since the enactment of Medicare and Medicaid in 1965.

Health insurance costs in the United States are a major factor in access to health coverage. The rising cost of health insurance leads more consumers to go without coverage and increase in insurance cost and accompanying rise in the cost of health care expenses has led health insurers to provide more policies with higher deductibles and other limitations that require the consumer to pay a greater share of the cost themselves.

Health care finance in the United States discusses how Americans obtain and pay for their healthcare, and why U.S. healthcare costs are the highest in the world based on various measures.

The Affordable Care Act (ACA) is divided into 10 titles and contains provisions that became effective immediately, 90 days after enactment, and six months after enactment, as well as provisions phased in through to 2020. Below are some of the key provisions of the ACA. For simplicity, the amendments in the Health Care and Education Reconciliation Act of 2010 are integrated into this timeline.

References

  1. Income, Poverty, and Health Insurance Coverage in the United States: 2007 (PDF) (Report). U.S. Census Bureau. August 2008.
  2. 1 2 3 4 5 6 Chovan, Teresa; Yoo, Hannah; Wildsmith, Tom (August 2005). Individual Health Insurance: A Comprehensive Survey of Affordability, Access, and Benefits (PDF) (Report). America's Health Insurance Plans. Archived from the original (PDF) on November 27, 2007.
  3. 1 2 Bernard, Didem; Banthin, Jessica (April 2008). Premiums in the Individual Health Insurance Market for Policyholders under Age 65: 2002 and 2005 (PDF) (Report). Statistical Brief. Vol. 202. Agency for Healthcare Research and Quality.
  4. 1 2 3 Update on Individual Health Insurance (PDF) (Report) (revised ed.). Kaiser Family Foundation. August 2004. p. 5. Archived from the original (PDF) on 2008-04-09.
  5. Bertko, John; Yoo, Hannah; Lemieux, Jeff (July 2009). An Analysis of the Distribution of Cost-Sharing Levels in Individual and Small-Group Coverage (Policy Report). Changes in Health Care Financing & Organization (HCFO). Robert Wood Johnson Foundation.
  6. "Health Insurance Options for Americans". Health Management Corp. 23 January 2019. Retrieved January 23, 2019.
  7. Herring, B.; Pauly, M. (2005). "Risk Segmentation in the Individual Health Insurance Market". Abstr AcademyHealth Meet. AcademyHealth Meeting. Vol. 22. Boston, MA. Abstract no. 3899. Archived from the original on 2008-10-13 via NLM Gateway.
  8. Tucker, Elizabeth M.; Hogan, Lindsey (September 2007). The Cost And Benefits Of Individual Health Insurance Plans: 2007 (PDF) (Report). Forrester Research and EHealthInsurance.
  9. Binckes, Jeremy; Wing, Nick (May 25, 2011). "Health Reform Bill Summary: The Top 18 Immediate Effects Of The Health Care Bill". The Huffington Post. Oath Inc. Retrieved 2010-03-22.
  10. Alonso-Zaldivar, Ricardo (March 24, 2010). "Gap in health care law's protection for children". Associated Press. Archived from the original on March 27, 2010. Retrieved 2010-03-24 via Google News.
  11. 1 2 DiJulio, Bianca; Claxton, Gary (March 3, 2010). "Snapshots: Comparison of Expenditures in Nongroup and Employer-Sponsored Insurance: 2004–2007". Kaiser Family Foundation .
  12. The Price Sensitivity of Demand for Nongroup Health Insurance (Background paper). Congressional Budget Office. August 1, 2005.
  13. Marquis, M. Susan; Buntin, Melinda Beeuwkes; Escarce, Jose J.; Kapur, Kanika; Yegian, Jill M. (October 2004). "Subsidies and the Demand for Individual Health Insurance in California". Health Services Research. 39 (5): 1547–70. doi:10.1111/j.1475-6773.2004.00303.x. PMC   1361083 . PMID   15333122.
  14. Jacobs, Paul; Claxton, Gary (January 30, 2008). How Non-Group Health Coverage Varies with Income (Report). Kaiser Family Foundation.
  15. Marcus, Aliza (May 7, 2008). "Baby Kendra's $300,000 Bill Pains Insurers, Inspires Candidates". Bloomberg News. Archived from the original on February 22, 2012. Retrieved 2008-05-10.
  16. Merlis, Mark (April 13, 2005). Fundamentals of Underwriting in the Nongroup Health Insurance Market: Access to Coverage and Options for Reform (PDF) (Background paper). National Health Policy Forum.
  17. Pauly, Mark V.; Lieberthal, Robert D. (May 6, 2008). "How Risky Is Individual Health Insurance?". Web exclusive. Health Affairs. 27 (3): w242-9. doi:10.1377/hlthaff.27.3.w242. PMID   18460501.
  18. Levick, Diane (August 18, 2008). "More Health Insurers Competing In Individual Coverage Market". The Hartford Courant . Archived from the original on August 22, 2008.
  19. O'Hare, Thomas P. (2000). "Regulation". Individual Medical Expense Insurance. Huebner School series. Bryn Mawr, PA: The American College. ISBN   1-57996-025-1. OCLC   45322482.[ page needed ]