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.

COBRA Health Insurance: Strategies and the Stimulus Package

COBRA is another one of those things that sound much cooler than it really is. It's 1986 piece of legislation that allows you to continue coverage on your employer's health insurance for up to 18 months after leaving that employer. However, you pay the full premium. COBRA stands for Consolidated Omnibus Budget Reconciliation Act as it was actually a budget bill. The employer health insurance extension was just a small piece that has been named for the entire budget bill.

COBRA has made the news recently as part of the Obama administration economic stimulus package. First, let me digress by commenting does anyone else have to refrain from giggling whenever they see broadcasters talking about a "stimulus package" with a very serious tone? Whoever thought that all this talk about stimulating packages referred to economic policy and not a by the hour hotel rooms?

The article describes how the stimulus package (giggle giggle) would pay 65% of the employer premiums for people who are on COBRA for 9-12 months. The article mentions that only 9% of people who are eligible for COBRA sign up since it can be expensive. Subsidizing health insurance helps break the cycle of people losing their insurance when they lose their job and can make a government program work better.

At face value, it looks like a gift to the insurance companies and crowding out private options. However, when you look at the economics, it makes more sense as it is priced to benefit those who need it the most. Employer insurance policies are fairly comprehensive plans and average $600/month and the 35% that someone would pay is $210. My company's individual insurance premiums average around $195 so an individual option is still cheaper for someone who wants to pursue that option. The price of individual plans varies by age so a younger person can easily get a plan for under a $100.
Therefore, someone who would pay $210 when there are cheaper options available would probably 1) not qualify for the individual plan since they wouldn't pass the health screen or 2) really need the more comprehensive coverage. The 65% subsidy makes the plan affordable for those who need it and don't have other options in our dysfunctional individual insurance market.

There is the question of what an insurance subsidy is doing in a stimulus package. Health care is being framed as an economic issue and on a basic level, if someone has to spend all their money on health care, they are not spending in other areas or saving money. For those who argue that this is yet another step towards government taking over health care, I'll point out that the government is already involved in at least 20% of the health insurance industry with Medicaid and Medicare. Employers are looking to get out of the business of offering health care so the government's role will increase.

For those who don't need a comprehensive insurance plan, COBRA is a free 3.5 month option to buy the comprehensive insurance when you need it. United Health care offered a $40 per month option to buy insurance when you needed it. For someone who would be without insurance for a summer in between graduation and starting work and doesn't plan to go to the doctor or have regular prescriptions that are usually covered, they can hold on to this option to buy whenever they need it. Here's how it works.

You have 60 days to tell your employer (or whoever administers their COBRA) that you want COBRA or not. Once you tell the employer that you want COBRA, you have 45 days to pay the first premium. So you can wait 59 days, tell the employer you want COBRA and than wait 45 days to pay for it. That's the 104 day or 3.5 month option. You can also activate your COBRA at anytime. If you haven't notified your employer within the first 60 days but get trampled by a herd of yaks on day 30, you can notify the COBRA administrator while you're in the hospital and get coverage. But once you start using COBRA you have to pay the premiums or then you can look for a cheaper plan.

Anyone who just needs an emergency option for insurance can do that with COBRA. This works best for folks who are leaving work and taking a few months off before starting school.