Why do 45% of those who turn to the individual market not buy?

In April, the Commonwealth Fund released the details of their survey which found 25% of working-age adults experienced a gap in coverage in 2011.  The report detailed that 45% of those who go to the individual market during a gap fail to engage a plan. On top of all that, the report concluded that the Affordable Care Act will be the answer to these issues in their entirety.  But how realistic is that conclusion, and what do these numbers really mean? 

According to the Commonwealth Fund survey report, “Gaps in Health Insurance:  Why So Many Americans Experience Breaks in Coverage and How the Affordable Care Act Will Help,” nearly half of working-age adults who experience a gap in coverage and turn to the individual market don’t end up purchasing coverage on that market. In the past, much has been made about the difficulty most individuals have in getting coverage in the individual market. People are denied access because of pre-existing health conditions. This survey points to a different cause. What is it?

The short answer?  PRICE.  People have no idea how much health care (or health insurance) really costs.  In the individual market, the true cost is no longer obscured by employer-subsidies… and when people are exposed to the real cost, sticker shock abounds.

The two main issues

So what will happen when health care reform comes into full effect in 2014? Currently, there are two main problems that cause people to refrain from purchasing in the individual market.

For some, it is access.  They are denied coverage because of a preexisting condition, or their condition is excluded from coverage when the plan is written on the individual market. That group makes up, according to this survey, about 19%. 

PPACA promises to solve the problem for the first 19%.  In 2014, no one will be denied coverage because of a preexisting condition or have a plan written for them that excludes their condition. But those measures will require everyone’s cost of health insurance to go up: someone has to pay for those benefits, after all.

For the majority of the rest, it’s affordability.  Of the remaining 81% who do not engage coverage on the individual market, 73% didn’t buy because of price.  Cost is the most often cited reason for not purchasing coverage.

So solving the problem for the 19% will drive up the costs for the other 73%, a group who is already price-sensitive. The United States Court of Appeals for the Eleventh Circuit has noted that guaranteed-issue provisions may result in a 27–30% increase for the individual market. It’s also guaranteed that at least some of the access-averted 19% would then become price-conscious and remain uninsured.  What is the greatest good for the greatest number of people? By fixing the minority issue, we may make the majority issue even worse.

The high risk pool

Before the prohibition on medical underwriting goes into effect in 2014, PPACA created an interim solution to improve access in the individual market. The preexisting condition insurance plans (PCIPs) provision went into effect immediately (it actually started in July 2010, after the legislation passed March 2010), and they offer transitional coverage for high risk participants who have chronic health problems. Initial estimates predicted that total enrollment in the federal high-risk pool program would grow from roughly 400,000 in 2011 to about 600,000 or 700,000 in 2013.

It was clear early on that the program had lower participation than expected. Despite the offering that basically allowed anyone coverage, provided they had a preexisting condition and had been without coverage for six months or more, to date there are only around 50,000 covered by PCIPs. That’s 0.1% of the total uninsured, and only about 10% of the initial engagement estimates.

The Affordable Care Act initially mandated that the PCIPs offer premiums on par with state market rates, and they’re allowed to offer rates based on age by up to a 4:1 ratio. Even so, the most likely culprit deterring people from the high risk pool were the high cost of premiums and expensive out-of-pocket costs. The funding for the pools is low, as well, funded with numbers that would only cover about 9% of the estimated high risk individuals. Even after dropping coverage costs and increasing the marketing efforts to make sure people are aware of this option, engagement remains low.  The Commonwealth Fund report sums it up well: “While awareness of the PCIP program is widespread, enrollment is low.”

The game changer

The health care reform legislation does have one ingredient that changes everything.  The Affordable Care Act has a solution for both the issue of access and that of affordability.

The biggest advantage that employer-provided group insurance has that the individual market lacks right now is tax credits. PPACA creates tax credits for individuals in the form of subsidies.  Once this new system of tax credits comes into play in 2014, it has the potential to solve both problems, since all will have access, and the individual tax credits could make individual health care more affordable for those price-sensitive seventy-three percenters.

What else?

There are other fine points associated with the failure to buy on the individual market.

Current tax incentives for group coverage make employers want to offer more insurance coverage than is sometimes necessary, so people are often over-insured. As they come to the individual market, they’re looking for options that they’re accustomed to but unable to find.

People are also not well educated about their benefits, so as they enter the individual market, the options are overwhelming. “The individual market for most Americans is neither affordable nor easy to navigate” (Commonwealth Fund Report). In the study, 60% of those attempting to navigate the individual market found it difficult to compare benefits between plans. Individuals who buy less insurance consume less health care, but people need education about which options are important for them.

The future of the individual market

It remains to be seen how all of these factors will play out for the uninsured, once 2014 arrives. Forty-six states have engaged federal grant money for research and creation of state-based exchanges (click the link for an interesting map about it). All major carriers have begun mapping out a plan for their private exchanges. Over the past 10 years, the number of individuals on employer-sponsored plans has dropped by 5.3% while the overall non-elderly population has grown by 10.8%.

Without healthcare reform, the individual market has already been growing as a result of the shifting marketplace. PPACA will only accelerate this shift. What role will the individual market play over the next few years, and how will this influence the decisions you help your clients make about their benefits plans?

This article was first featured in the May 1st edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

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