Health Reform Without Side Effects: Making Markets Work for Individual Health Insurance by Mark V. Pauly

Author:Mark V. Pauly [Pauly, Mark V.]
Language: eng
Format: epub
Tags: Medical, Health Policy, Political Science, General
ISBN: 9780817910464
Google: HmaC7Vej4MsC
Publisher: Hoover Press
Published: 2013-09-01T09:50:26+00:00

Regulation and pricing without exchanges

In the absence of a formal exchange or an exchange-like arrangement by a dominant employer, how do people buy small-group or individual insurance? In the status quo, there is some regulation. As already noted, individual coverage is required by current law to be guaranteed renewable at class average rates, there are some guaranteed issue provisions, and in a small number of states the variation in the premium charged to a new (not renewing) insured is regulated with respect to limits on variation with risk. In the small-group market there are no guaranteed renewability provisions applying to individual workers or to individual workers in groups, but premium variation across groups is limited to some extent in the great majority of states, usually with rating “bands” (that is, premiums for any one group cannot be more than twice the average). HIPAA rules do generally require that people insured at one firm who switch jobs be covered at the new firm (if it offers coverage) regardless of risk, but this does not apply to some small firms and, as noted, offers no protection in the individual market. When risk variation is limited, usually variation related to demographics and location is allowed, but not variation based on the prevalence of chronic conditions or health status of a workforce. However, even in heavily regulated states, premiums can vary over time based on past group experience (for example, New York allows experience-rated groups); the rules apply to the initial offering and also depend to some extent on the size of the group, with larger groups having more “credibility” applied to their claims experience. In some states, very small groups are lumped together with individual insurance.

Buyers approach unregulated markets in several potentially different ways. One option is to search online; there are websites for individual insurance and small-group plans, indicating both premiums and coverage. However, anyone seeking to buy what is on the website must apply for coverage and be approved and underwritten—so a listing on a site is not really an unconditional offer to sell at that price. Some individuals and many small employers use brokers, middlemen who gather information about the prices and features of different plans, offer advice to the buyers, and help guide the application and underwriting process. If a broker arranges a transaction, the insurer pays an initial commission (and often a small commission at renewal). The payment system is similar to the way travel agents used to function, who were paid by the airlines rather than, as at present, getting an add-on to the seller’s price. Finally, buyers can approach the market in a less organized way, contacting specific companies based on word-of-mouth information or name recognition, with at best an informal search.

The evidence on efficiency of price search under existing arrangements, as noted above, is mixed. There is wide variation in premiums posted or quoted by different insurance companies for apparently similar policies (Pollitz and Sorian 2001), but that is less relevant than information about the variation in prices people actually pay (Pauly, Herring, and Song 2006).

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