In his January 23, 2007, State of the Union Address, President Bush proposed two initiatives for increasing health insurance coverage. His two-pronged initiative comprises a standard deduction for individuals and families who purchase private health insurance in the individual market, as well as federal subsidies to states that provide private health insurance options to low-income individuals and individuals whose prior health histories make them difficult to insure.
For years, policymakers and researchers have explored various reforms of the individual insurance market, contending that it could be a vehicle for incrementally increasing access to and affordability of health insurance coverage.1 Conventional wisdom holds that those with group coverage experience certain market advantages, including lower premiums, economies of scale, a more diverse risk pool, and better provision of information about benefit packages, prices, available providers, and other factors important to health care coverage and delivery. However, those in the individual market sometimes enjoy more choice among insurance products and plan choice is not controlled by their locus of employment.2
The federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) ensured access to the individual market for those leaving group coverage. A close look at six states’ attempts to reform the individual market, making it more accessible and affordable, revealed a range of regulatory changes – all of which moved beyond HIPPA – including mandating a standard benefit package, implementing rating restrictions, requiring a rate approval process, requiring insurers offering group insurance in the state to also offer individual coverage, and implementing risk adjustment or reinsurance.3 But, even in the states with the most comprehensive reforms, evidence showed that state reform of the individual market did not significantly increase health insurance coverage.
Based on the evidence available by 2000, there was consensus that additional analysis was needed to explore the cost of subsidizing coverage for high risk populations, as well as to better understand how various modifications to the tax structure would affect the individual market.4 Significant work on those topics was subsequently supported by HCFO and now serves as a resource to inform the current policy debate.
Joel Cantor and colleagues at Rutgers, The State University of New Jersey, examined trends in enrollment in New Jersey’s Individual Health Coverage Program (IHCP), implemented in 1993. Two key components of the IHCP were pure community rating and guaranteed issue/renewal of coverage. Despite positive early evaluations Cantor found, under his HCFO-funded study, that the program’s stability was fragile. He also concluded that even as opportunities increased for job-related insurance coverage, the IHCP retained its high-risk enrollees.5 Under a separate HCFO grant, Katherine Swartz and Deborah Garnick also studied reform of New Jersey’s individual insurance market. Based on the first four year’s of New Jersey’s IHCP, they identified three significant lessons for state and federal policymakers seeking to expand insurance coverage without increasing entitlement programs: 1) a market can be created for all residents, and carriers can agree to a mechanism for subsidizing those carriers that incur losses; 2) plans for setting up incentives for firms to behave in intended ways may not work; and 3) even competitive insurance markets cannot drive the cost of health insurance so low that healthy, low-income people will decide to purchase it.6
Further examination of guaranteed renewability and risk variation in individual insurance markets was conducted under two HCFO grants to Mark Pauly at the University of Pennsylvania. He examined the relationship between expected medical expense and actual paid premiums for households with individual insurance and found that premiums were not as dependent on expected medical risk as anticipated. To the extent that premiums were associated with medical risk, it was only for specific risk characteristics. Premiums for those enrolled in HMOs or in markets with a high penetration of managed care insurers were less closely associated with expected medical risk.7 In a second study, Pauly explored whether individual insurance market provisions for guaranteed renewability at class-average rates protected consumers with high-cost chronic conditions from premium fluctuations. He found that such protection was feasible in competitive insurance markets, but concluded that HIPAA’s guaranteed renewability provision alone was insufficient, because it failed to require that premiums be the same for all insured persons in a rating class. However, Pauly noted at the time of his research that all but three states had implemented such a requirement.8
Another HCFO-funded project, conducted by Andrew Coburn and colleagues at the University of Southern Maine, explored the extent to which individual insurance provides transitional versus long-term coverage. They also looked at participants’ insurance status before and after being covered by an individual plan. They found that most people enter the individual insurance market from employer coverage and also exit the individual insurance market to employer coverage. However, while bridging gaps in employer coverage is an important function of the individual insurance market, this study found that “an important minority” maintain individual insurance coverage for more than two years. Those who are employed by small businesses and the self-insured tend to spend the longest periods in the individual insurance market.9
Tax credits have been proposed as a way to finance increased coverage. Karen Pollitz, at Georgetown University, examined the health care tax credit mandated as part of the Trade Adjustment Act of 2002. She found that the administrative costs of delivering the tax subsidy were quite high and posited that they were likely to increase if the tax credit program were expanded to a larger population.10
In the coming year, as President Bush’s proposals are considered by Congress, there is likely to be continued debate about the potential for the individual insurance market to serve as a vehicle for increased insurance coverage. Central to that debate will be evidence about how subsidies and tax credits are likely to influence the behavior of those currently uninsured.
HCFO Funded Research
Commissioned papers and commentary in the Journal of Health Politics, Policy, and Law, Vol. 25, No. 1, February 2000.
- Berry, J. and R. White, “An Insurer’s Perspective on Reform”, pp. 205-210.
- Chollet, D.J., “Consumers, Insurers, and Market Behavior”, pp. 27-44.
- Feldvebel, A.K. and D. Sky, “Commentary: A Regulator’s Perspective on Other States’ Experiences”, pp. 197-204.
- Hackey, R.B., “Commentary: The Politics of Reform”, pp. 211-224.
- Hall, Mark A., An Evaluation of New York’s Reform Law, pp. 71-100.
- Hall, M.A., “An Evaluation of Vermont’s Reform Law”, pp. 101-132.
- Kirk, A.M., “Riding the Bull: Reform in Washington”, Kentucky, and Massachusetts, pp. 133-174.
- Nichols, L.M., “What Have We Learned So Far?” pp. 175- 196.
- Oliver, T.R., “Commentary: Dynamics Without Change”, pp. 225-232.
- Pauly, M.V. and A.M. Percy, “Cost Performance: A Comparison of the Individual and Group Health Insurance Markets”, pp. 9-26.
- Peterson, M.A., “Editor’s Note”, pp. 1-2.
- Rogal, D.L. and A.K. Gauthier, “Introduction: The Evolution of the Individual Insurance Market”, pp. 3-8.
- Swartz, K. and D.W. Garnick, “Lessons from New Jersey”, pp. 45-70.
Title: Monitoring the Early Experience with Federal Health Insurance Tax Credits
Institution: Georgetown University
Grant Period: February 2004 – July 2005
Principal Investigator: Karen Pollitz, MPP
As part of the Trade Adjustment Assistance Act of 2002, Congress created a new, refundable, advance-payable health care tax credit. This tax credit can be viewed as a small-scale demonstration of health insurance tax credits as a way to expand coverage more broadly. This project examined five aspects of the tax credit. It (1) it described the qualified coverage options established in every state; (2) it will explore the reasons why states decide to establish different coverage arrangements; (3) it will examine enrollment statistics to determine the impact of state coverage decisions; (4) it will explore the availability of data on state-based coverage programs for evidence that premium subsidies reduce adverse selection; (5) it will review available data on people who claim the tax credit and the premiums they pay. The purpose of this study is to provide policymakers with objective and timely information that will help them monitor and understand the early operations of this program.
Title: Sustaining Individual Health Insurance Markets Under Community Rating and Open Enrollment
Institution: Rutgers, The State University of New Jersey
Grant Period: April 2002 – September 2003
Principal Investigator: Joel Cantor, Sc.D.
What is the extent of risk selection in New Jersey’s Individual Health Coverage Program (IHCP), which was implemented in 1992 as part of the state’s individual market reforms? What are the policy options for sustaining access to individual health plans and describe the role of the non-group coverage in New Jersey’s health care insurance market? Using data from The Robert Wood Johnson Foundation-funded New Jersey Family Health Survey (NJFHS), the researchers aimed to answer the following questions: (1) How has the distribution of risk changed in the IHCP since 1995-6 and what are the implications of those changes for the viability of community rating and related reforms? (2) What is the potential impact on current or potential IHCP enrollees of adopting modified community rating? and (3) What role does the IHCP play in the continuum of coverage in New Jersey? The objective of this study was to analyze changes in New Jersey’s individual insurance market to inform state policymakers considering reforms to make non-group markets accessible and viable. The researchers supplemented the NJFHS data with a sample of 600 non-group subscribers (subscriber lists provided by top 4 or 5 carriers in state who cover 95% of lives in the individual market). Using the same methodological approach utilized by Swartz and Garnick in the early years of the IHCP, they assessed the risk of medical expenditures of adult IHCP enrollees compared to that of a contrast population comprised of individuals with non-small-group employment-based insurance. They also compared the IHCP enrollees with the entire employer-group market and the uninsured.
Title: Guaranteed Renewability in Individual and Group Health Insurance: Functioning and Future Prospects
Institution: University of Pennsulvania, The Wharton School
Grant Period: November 2001 – October 2002
Principal Investigator: Mark V. Pauly, Ph.D.
If private insurers can be encouraged to improve the protection offered by their products, is it possible that those improvements can benefit consumers and obviate the need for regulation with undesirable side effects? This project focused on the individual and small group insurance markets; namely, the sharp increases in premiums which occur when an individual incurs large medical expenses. The researchers carried out three research tasks, summarized as follows: 1) Estimated the age profile of premiums for an “optimal,” benchmark guaranteed renewability (GR) policy that would cover claims (including the expenses of high-risk insureds) but not be priced so high that low-risks would leave for a cheaper policy. 2) Used data from MEPS, longitudinal claims data bases, and the Health and Retirement Survey to calibrate an empirically based, “exploratory” model derived from the optimal policy described in (1) that they can use in task #3. 3) Simulated hypothetical case studies that members of the Society of Financial Service Professionals, participating in “virtual focus groups,” evaluated on the basis of degree of realism. This study explored the effects of guaranteed renewability on public policy, (particularly if it could provide protection to high risks in a population) and informed insurance firms and insurance regulators about how to make it work better.
Title: Patterns of Individual Coverage
Institution: University of Southern Maine, Muskie School of Public Service
Grant Period: October 2001 – June 2003
Principal Investigator: Andrew F. Coburn, Ph.D.
How do the dynamics of the individual insurance market inform how long participants remain covered? What factors affect the length of participation and subsequent insurance status? Researchers at the University of Maine examined three specific questions: 1) Who uses the individual insurance market? 2) What role does individual insurance play in providing longer-term versus bridge coverage; and 3) What are the patterns of entry into and exit from the individual insurance market? This study better informs the policy debate, at both the federal and state levels, about the best options for sustaining affordable individual insurance coverage.
Title: Premium Variation and Insurance Demand in the Individual Market
Institution: University of Pennsylvania, The Wharton School
Grant Period: March 1999 – October 2000
Principal Investigator: Mark V. Pauly, Ph.D.
What effect does prior risk have on the premiums faced by purchasers in the non-group health insurance market? Researchers at the University of Pennsylvania’s Wharton School analyzed the extent to which premiums paid for non-group health insurance vary with the purchaser’s prior risk, and how this relationship varies with income, family size, presence or absence of strong individual insurance product community rating laws, managed care competition and penetration, and provider competition. Using the Community Tracking Study Household Survey, along with data from the Medical Expenditure Panel Survey (MEPS), the Area Resource File and the InterStudy Survey, they examined whether purchases in the individual market were affected by these factors differently than purchases in the group market. Part of this analysis involved constructing measures for each individual’s projected health care expenses, based on known predictors of health spending. The study’s objectives were to: 1) look at the extent to which non-group premiums vary with individual characteristics such as age, gender, family size, and poor health status; 2) examine the overall variation in non-group premiums for various population subgroups; 3) assess how local market conditions or community rating laws affect the variation of risk selection along the premium scale; 4) examine how much variation exists in benefit design and other plan characteristics within the non-group market; and 5) examine if otherwise similar families choose differently from a choice of non-group plans than from a choice of group plans.
Title: Expansion of the Evaluation of the Effects of New Jersey’s Individual Health Coverage and Access Programs
Institution: Harvard School of Public Health
Grant Period: May 1998 – April 1999
Principal Investigator: Katherine Swartz, Ph.D.
Using data collected during a previous HCFO evaluation of the market for individual health insurance coverage in New Jersey, the researchers wrote three papers: 1) The Effect of Subsidies on the Decision to Purchase Health Insurance Among Low Income Individuals: Lessons from the 'Health Access New Jersey' Program; 2) Meeting Information Needs: Lessons Learned from New Jersey’s Individual Health Insurance Reform Program; 3) Satisfaction with Health Plans Among People Insured in the Individual Health Insurance Market in New Jersey. In addition, they completed drafting five additional papers begun under the original grant. The objective of this project was to provide state and national policymakers considering various insurance market reforms with further information about how well these reforms have allowed New Jersey to meet its program goals.
Title: An Evaluation of the Primary and Secondary Effects of Insurance Market Reform
Institution: Bowman Gray School of Medicine
Grant Period: September 1996 – December 2000
Principal Investigator: Mark A. Hall, J.D.
What are the effects of state health reforms? Researchers at the Bowman Gray School of Medicine evaluated insurance market reforms in 12 states. The effects within a single carrier's various lines of business will be compared among carriers within a given state, and these statewide patterns were compared across states. The study consisted of intensive case studies of insurance market reforms and their effects in a non-random sample of six states that have enacted varying reforms, and a less intensive study of an additional six states. The researchers conducted: 1) two rounds of open-ended interviews of key informants; 2) participant observational studies of insurance agents; 3) content analyses of sales literature and news articles; and 4) statistical analyses of archival documents and secondary data. The objective of this study was to inform lawmakers and the public policy community about whether and how these reforms have achieved their multiple purposes or caused negative consequences, as well as about how the reforms might be improved.
Title: Evaluation of Reforms of the Market for Individual health Insurance Coverage in New Jersey
Institution: Harvard University School of Public Health
Grant Period: September 1995 – December 1997
Principal Investigator: Katherine Swartz, Ph.D.
Researchers at Harvard University and Brandeis University conducted a three part evaluation of reform of New Jersey's individual health insurance market implemented in August 1993. By gathering information from interviews with state officials and insurance executives, as well as from a survey of people enrolled in the individual insurance program, the researchers examined who enrolls in individual policies, what aspects of the reforms most influenced their choices, and what key players perceive as the strengths and weaknesses of the reforms. The objective of this project was to provide state and national policymakers considering various insurance market reforms with information about how well these reforms have allowed New Jersey to meet its program goals.
Title: Evaluation of State Initiatives to Expand Health Insurance Among Small Businesses
Institution: Wayne State University Institute of Gerontology
Grant Period: December 1992 – February 1995
Principal Investigator: Gail A. Jensen, Ph.D.
Are states' efforts to encourage small businesses to offer their employees health insurance successful? This study was designed to evaluate whether three sets of state initiatives -- waiving mandated benefit requirements, subsidizing premiums and reforming the small group insurance market -- have led to an increase in the availability of insurance among employees of small firms. Results from the study helped states to understand the potential effects of implementing legislative mandates to reform the small group market and the relative impact of three types of initiatives on expanding coverage among small businesses.
1 Peterson, M., “Editor’s Note,” Journal of Health Politics, Policy, and Law, Vol. 25, No. 1, February 2000, p. 1.
2 Rogal, D.L. and A.K. Gauthier, “Introduction: The Evolution of the Individual Insurance Market,” Journal of Health Politics, Policy, and Law, Vol. 25, No. 1, February 2000, p. 3.
3 Nichols, L.M., “State Regulation: What Have We Learned So Far?” Journal of Health Politics, Policy, and Law, Vol. 25, No. 1, February 2000, p. 188.
4 Rogal, D.L. and Gauthier, A.K., “Introduction: The Evolution of the Individual Insurance Market,” Journal of Health Politics, Policy, and Law, Vol. 25, No. 1, February 2000, p. 7.
5 Monheit, A.C., Cantor, J.C., et. al., “Market Watch: Community Rating and Sustainable Individual Health Insurance Markets in New Jersey,” Health Affairs, July/August 2004.
6 Swartz, K. and Garnick, D., “Lessons from New Jersey,” Journal of Health Politics, Policy, and Law, February 2000.
7 Herring, B. and Pauly, M.V., “Premium Variation in the Individual Health Insurance Market,” International Journal of Health Care Financing and Economics, March 2001.
8 Patel, V. and Pauly, M.V., “Guaranteed Renewability and the Problem of Risk Variation in Individual Health Insurance Markets,” Health Affairs, web exclusive, August 28, 2002.
9 Ziller, E., Coburn, A., et. al., “Patterns of Individual Health Insurance Coverage, 1996-2000,” Health Affairs, November/December 2004.
10 Pollitz, K., “Health Insurance Tax Credits: Layers of Complexity Underlie ‘Simple’ Health Insurance Subsidy,” Georgetown University, 2005.
