Actuarial values of individual coverage plummet
Trends In The Golden State: Small-Group Premiums Rise Sharply While Actuarial Values For Individual Coverage Plummet
by Jon Gabel, Jeremy Pickreign, Roland McDevitt, Heidi Whitmore, Laura Gandolfo, Ryan Lore, and Katy Wilson
Health Affairs
June 14, 2007
Using multiple databases, this paper examines recent trends in the affordability and comprehensiveness of small-group and individual health insurance markets in California. Both became less affordable over the study period.
Actuarial value is the proportion of claims expenses for covered services paid by the insurance plan for a large standardized population.
From 2003 to 2006, the actuarial values of plans purchased in the small-group market remained statistically unchanged at 0.83; they ranged from 0.54 to 0.96 in 2006. In contrast… actuarial values in the individual market declined from 0.75 to 0.55. In 2006, actuarial values for these products ranged from 0.32 to 0.85.
Premiums adjusted for their financial protection increased 65 percent, from $246 to $405, in the small-group market over the study period. Although absolute premiums in 2006 were considerably lower in the individual insurance market than the small-group market ($259 versus $382), there were no statistical differences between adjusted premiums in the 2006 individual and small-group markets.
In both the small-group and individual insurance markets, people buying family coverage would spend an even larger share of their income on medical expenses and premiums. For example, in the small-group market, a family with the median family income ($71,025) would spend 8.2 percent of income, whereas a family earning poverty-level income would spend 28.9 percent of income. Corresponding figures for the individual insurance market are 19.1 percent for families earning the median income and 67.9 percent for families earning poverty-level incomes.
Our findings suggest that responses to rising health care costs have differed in the small-group and individual insurance markets. In the former, premiums rose more than 50 percent from 2003 to 2006, as insurance has maintained its actuarial value, paying for roughly 83 percent of medical bills of a standardized population. In the latter, premiums increased a modest 23 percent from 2002 to 2006, but plans’ actuarial value fell dramatically, from 0.75 to 0.55.
Findings from this paper suggest that when out-of-pocket medical expenses are added to premium payments, single people would need to earn approximately $50,000 a year (almost $20,000 above the median income for single people in California) to drive expenses below 10 percent of family income.
Some policymakers and thought leaders seek to move increasing numbers of Americans into the individual insurance market. Our findings suggest that although premiums might seem attractive in the individual insurance market, the out-of-pocket expenses in an unreformed individual market would leave many people with expenses that would constitute “catastrophic costs” to those of average means.
http://content.healthaffairs.org/cgi/content/abstract/hlthaff.26.4.w488v1
Comment:
By Don McCanne, MD
No surprise. As has been shown over and over, for average-income individuals either insurance premiums are unaffordable, or out-of-pocket expenses for health care are unaffordable (or both).
Perhaps the most shocking numbers in this report are the actuarial values of plans in the individual insurance market in California. In 2006, the plans would pay an average of only 55 percent of health care costs. Worse, some would pay as little as 32 percent, leaving the insured individual responsible for two-thirds of the health care bill!
So the solution is to require individuals to purchase plans that don’t provide adequate financial protection with premiums that they can’t afford? When will the nation understand that private health plans are obsolete? They simply don’t work anymore.
With the $2.2 trillion we are already spending on health care, we could fix the problem by establishing a single risk pool that includes everyone, and fund it equitably through progressive tax policies. What is there about this simple concept that our policymakers can’t fathom?