Consumer Decision Making In The Individual Health Insurance Market
A study in California suggests that the individual market is an important source of long-term coverage for many who purchase it.
Health Affairs
May 2, 2006
by M. Susan Marquis, Melinda Beeuwkes Buntin, José J. Escarce, Kanika Kapur, Thomas A. Louis, and Jill M. Yegian
Abstract:
This paper summarizes the results from a study of consumer decision making in California’s individual health insurance market. We conclude that price subsidies will have only modest effects on participation and that efforts to reduce nonprice barriers might be just as effective. We also find that there is substantial pooling in the individual market and that it increases over time because people who become sick can continue coverage without new underwriting. Finally, we show that people prefer more-generous benefits and that it is difficult to induce people in poor health to enroll in high-deductible health plans.
Study Results
Continuity of coverage.
Our study of the California market… suggests that the market is an important source of long-term coverage for a sizable fraction of those who purchase it. About 60 percent of new coverage episodes continue more than one year, and more than 30 percent continue for more than three years.
Access for poor health risks.
Underwriting might prevent some high-risk market candidates from obtaining insurance because insurers are free to deny coverage. Those who obtain health insurance are in better health than those who remain uninsured.
Turnover and pooling of health risks.
Although the individual market is a source of long-term coverage for a large share of subscribers, as reported above, it also serves a population of people who enroll for only a short period of time.
The role of price in consumers’ decisions.
Although price has only a small effect on the decision about whether or not to buy, it has a bigger effect on the decision about which product to buy.
The role of benefit design on demand.
Consumers in poor health are more likely than healthier consumers to demand generous benefits.
Nonprice barriers to purchasing coverage.
Choice in the individual market means that the complexity of the shopping task is also high.
http://content.healthaffairs.org/cgi/content/full/hlthaff.25.w226v1/DC1
Comment:
By Don McCanne
This RAND study celebrates the fact that only 69 percent of beneficiaries in the individual insurance market have left their plans by the end of three years. Their finding that substantial pooling takes place over time certainly does not apply to the great majority of these individuals.
Rather than the positive message of how well the individual market is working, the other results reported only further confirm the inequities and deficiencies of the individual insurance market. The flaws won’t be repeated here since you can read several of them above.
The article also “offers some lessons for policymakers looking for strategies to encourage more of the uninsured to participate in this market.” The suggestions offered constitute minimal tweaking of the plans, only perpetuating the injustices permeating the individual insurance market.
The primary lesson for policymakers should be that we need efficient, affordable, comprehensive coverage for everyone through a single, national health insurance program. As a think tank, RAND should go back and do some more thinking on this one.