Whither the Individual and Family Insurance Market?

Today was a bit of a spreadsheet day as I was looking at the fourth quarter insurance market numbers that the Oregon Insurance Division thoughtfully provides. I pulled out the numbers, put them into my spreadsheets, and will spin them into power point graphs for everyone's bullet pointed enjoyment.

I like spreadsheet days. My biggest surprise is that more people like spreadsheet days (where you spend a few hours adding numbers, formula, and tables to an Excel spreadshhet) than I had thought judging by responses to my Facebook status updates. At the end of the day, there is a finished product that gives concise answers. Plus, I can geek out by changing model assumptions and watch the sensitivity run wild. Looking back at that sentence, it's really a shame that the models that I am talking about are on the computer.

My spreadsheets clearly told me that despite the fact that there are 12% fewer Oregonians who are getting health insurance from their employers at the end of 2008, there are not more people buying individual and family insurance. In fact, 5% fewer people are buying individual insurance. That means more uninsured people.

While I know that health insurance is as popular as a cold sore outbreak at a nudist colony, I didn't realize how unpopular it is until I saw these numbers. 180,000 people in the state of Oregon who lost their employer insurance decided not to buy an individual plan. Additionally, 5,000 people left their individual plan. These numbers are through the end of 2008 so they don't take the COBRA stimulus factor into account.

While my product manager colleague was forecasting a decline in the group insurance market that he works on, I thought that his loss would be my gain as the individual insurance market would grow. Instead it's shrinking as people are choosing not to spend $100-$200 per month on health insurance. The fact that pre existing condition has become a dirty word might be a factor as every plan has some restrictions around covering these conditions. Or what else could it be?

I can't turn back to my spreadsheets for an answer to why the individual insurance market is shrinking when its customer base should be growing. I know that everyone has less money but they are some cheaper plans available. Or is buying health insurance the last thing on their mind as they probably tried to stock up on medical work before their insurance expired at the end of the month. Some of my thoughts are:

1. They think that they will find a job with health insurance soon. That's possible but I think that it's unlikely. Everyone hears about the severity of the recession and how it's even being called a depression now (which makes me think that now is a great time to put Prozac in the water supply). Unfortunately, I don't think that people are that optimistic.
2. The Value Proposition is not there for Individual Insurance. Comprehensive plans have either gotten too expensive and/or people don't feel that the cheaper plans cover enough health care for the price. They do the math, think about the cost of services they use versus how much they would pay per month and it's not worth it. The market has been moving towards cheaper plans that cover less.
3. They are buying short-term insurance policies or figuring out other options like negotiating for care. Short-term policies (which are temporary policies that typically cover major medical conditions) might be the interim step before spending more money on a full individual insurance plan. It does make sense because you can spend a lot less and put off the decision to have to buy health insurance for 6 months. I have also heard that people are starting to negotiate with their doctor or hospital. They will ask for the discounted rates that insurance companies will pay or they will just offer to pay in cash upfront in exchange for a 30% or take their business elsewhere. One unanticipated consequence of making consumers pay more for health care is that providers are facing individual negotiations for payment rather than having one negotiation with a health plan. Providers are starting to counter these negotiations with requiring upfront desposits for those without insurance.

Overall, I think that people are looking seriously at alternatives before buying individual health insurance so it's a combination of #2 and #3. Since the value proposition is not there and consumers are starting to negotiate for their health care on their own or look for alternatives, I've got to figure out a way to make individual insurance plans more attractive. I've been launching surveys and asking anyone who will listen about how easy it is to buy insurance from us. Our lower cost insurance plans have lots of extra features that we think are important but I think that their added cost dissuades people. It's difficult to experiment in the individual insurance market due to our own risk aversion and regulations but the market is talking to me loud and clear.