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.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

Insights on the Uninsured in the Workplace

PPACA is designed to encourage the 51 million uninsured to enter the marketplace in 2014. Since this population has been largely unexplored, the management consulting firm Oliver Wyman did a survey of the uninsured in September, in efforts to uncover their demographics, healthiness, attitudes and preferences towards health care. Because we focus on employers and their benefit plans, we thought it would be interesting to look at these survey results in light of the currently “Waived” and “Ineligible” populations within employer environments. Of course, the number one source of “Waived” is likely to be employees opting to participate in their spouse’s employer-based plan, but let’s explore what insights this survey provides about those who are truly “Opting Out.”

Engaging coverage

The survey finds that when asked to choose between buying insurance and paying a penalty, 76% of the uninsured would elect to purchase coverage. The study based their analysis on the presence of an individual mandate and the commensurate penalties, provisions which may change in June, and the authors chose to model the full penalties under the individual responsibility provision of health care reform, which don’t take effect until year three.

Accepting future adjustment of the numbers after the Supreme Court rules, this 76% election, about 39 million of the currently uninsured, says something about our opt-in rates for currently waived and currently ineligible employees. The study notes that while “uninsured Americans overwhelmingly see value in coverage, few really understand their options…” This is true of health care today, including employer-sponsored coverage. Education can equal participation. As employers determine the best route for their plans in 2014, it is vital that consultants can assist employers as they communicate options to employees, both opted in and waived, in a way that will align with the benefits strategy. 

State exchange:  innovation or limitation?

The study’s authors make some interesting assertions about how this rapidly expanded individual market may cause a boom in product innovation.  Their argument is based upon the fact that we will have 39 million new “customers” making individual purchase decisions based upon their individual preferences.  This is in opposition to the current environment, where the majority of health insurance is purchased through an employer who has taken a “one-size-fits-all” approach to benefits. 

The study goes on to test the sensitivity of uninsured consumers as to their willingness to spend more based upon differences in product design.  The study outlines options that could reduce health care costs which interest different segments of the individual market, including wellness options that are currently part of some plans, like maintaining a healthy body weight or quitting smoking.  It also polled this group’s interest on options that are not widely available, like receiving a majority of medical care at retail clinic in a pharmacy or retail store to reduce costs, or paying extra for 24-hour-a-day, seven-day-a-week access to doctors. The authors conclude that this “is a promising situation for a retail market intended to push health care toward better, cheaper coverage.”  

But, as the authors accurately state, “It remains to be seen whether any or all of these specific alternatives will ultimately be permitted in the exchanges.”  It is equally possible that this marketplace innovation will be inhibited by the regulatory controls on the distribution mechanism.  Said another way, the fact that these new individual products must be distributed through public health insurance exchanges may act as a limiting factor on the innovation which would otherwise occur in a marketplace less regulated.

Income and subsidies

Not surprisingly, the single most determining factor as to whether the uninsured would purchase insurance (even in the presence of an individual mandate) was the net cost of the insurance premiums after subsidies, relative to family income.  (See the chart here for a breakdown that the survey details.)  Based upon the way the premium subsidies are constructed, the study found that middle income consumers are less likely to purchase insurance than the lowest income group. 

The study authors again insert an opinion as to how the future of health care reform may roll out.  They assert that there will be “significant pressure to reduce subsidies.”  They note this:

This price sensitivity could work against ACA.  Health care costs are rising… faster than the Consumer Price Index and the tax revenue that ultimately pays for government programs.  It will be difficult for the federal government to increase subsidies at the same pace as medical trend – especially if the eligible uninsured numbers continue to grow through layoffs and continued unemployment.

Health care is becoming more expensive at a rate faster than people are generating the income to pay for it. As a result, even though the affordability measure is set to index, which this article fails to mention, there is a chance that it won’t keep pace with medical inflation unless medical inflation slows.  More and more individuals can be expected to push over the 9.5% affordability threshold and be eligible for subsidized exchange coverage. To keep the total cost to the government system of providing subsidies, the threshold would have to rise year-over-year to make sure more and more people don’t become eligible. Incidentally, a provision for this was added during the reconciliation process.

The Three Groups of Uninsured

What we found most interesting was the identification by the authors about three distinct segments within the uninsured population. The segments they note are “Struggling and Unengaged,” “Want to be Healthier,” and “Engaged to Save.” (The chart below gives a summary of the information included in the article.) They highlight that the former two are similar to segments found in the employer-sponsored market.

We wonder, however, about the presence of the “Engaged to Save” segment in the employer-sponsored market today, as non-participants. This group contains uninsured who are lower middle class, a bit younger than the other two segments. They are healthy but price-sensitive, willing to do nearly anything to reduce their health care costs.  These are individuals who may have waived coverage in the employer-sponsored market, a decision that was likely spurred by cost-consciousness and a lack of education on the benefits. This is the group that employers can key in to if the best version of their plan in 2014 requires participation.

The survey authors draw an interesting conclusion about the differences among the three segments of uninsured Americans, stating that some of them “might be willing to trade the traditional broad network of doctors for discounts on healthy groceries.”  For employers who need to keep their employees on coverage to best optimize their plans, this could have implications for increased employer-sponsored options in wellness programs and excepted benefits. 

Looking ahead

As 2014 approaches, and as the decision from the Supreme Court in June looms ahead, employers must begin considering how PPACA will affect their company’s benefits strategies.  It is vital that employers have a tactical strategy in place, rather than reacting in response to the changes after they are in place.  Surveys like these will allow consultants and employers to be aware of the changing demographic, especially as it relates to waived and currently ineligible employees.

This article was first featured in the March 6th 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.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.