9:00 a.m. EDT
Wednesday, Oct. 23, 2002

Contact: Jon Gardner, Health Affairs
(301) 656-7401, ext. 230

Despite Problems, Individual Health Insurance Market
Works Acceptably Well For Most Buyers

Analysts Agree that Current System Doesn't Work for the 20 percent of Individuals
With Low Incomes or Serious Health Problems

Washington, D.C.–Despite some of its known failings, the individual health insurance market works "passably well" for as many as 80 percent of the people who must seek coverage in that market, policy analysts Mark Pauly and Len Nichols write in an Oct. 23 Health Affairs Web article aimed at improving the debate on President Bush's plan to use tax credits to cover the uninsured.

The article leads off a package of papers by a group of the nation's leading economists and health researchers in this Web-exclusive edition of Health Affairs, the nation's leading health policy journal. Spanning a range of opinions and new research on the individual market, the articles focus on the individual health insurance market and its role in expanding coverage; the utility of tax credits for individuals buying private coverage; the role of high-risk pools and government subsidies for uninsurable individuals; and how better dissemination of information could help individuals find affordable coverage.

The article by Pauly, a health care economist at the University of Pennsylvania, and Nichols, economist and vice president with the Center for Studying Health System Change, covers the areas of agreement and disagreement on the individual market held by advocates and skeptics of Bush's plan to use tax credits to subsidize individual-market insurance purchases. Pauly and Nichols argue that the debate has been moved more by opinion than facts, and try to separate the two while explaining how disputes flow from factual disagreements. They present new data, which show that about 30 percent of those in households with a member who has at least one chronic condition do secure coverage in the nongroup market. Yet, they write that there is considerable disagreement over how many people face tough choices when they decide whether or not to buy individual insurance, such as paying a large share of household income in premiums or buying policies that don't cover chronic conditions.

Another analysis warns that this approach "is likely doomed to fail" absent significant reforms to the individual insurance market. In an article appearing in the October 23 Web issue of Health Affairs, analysts Karen Pollitz and Richard Sorian maintain that the individual insurance market -- as now structured -- "fails the tests of accessibility, affordability, adequacy, and sustainability for all but the youngest and healthiest of American adults." Using a tax credit approach to expand the current individual market without addressing some of these gaps, they say, would exacerbate its inequity.

Tax credits could encourage younger healthy people to buy individual insurance, write Pollitz, project director of the Institute for Health Care Research and Policy at Georgetown University, and Sorian, director of public affairs and a senior researcher at the Center for Studying Health System Change. But they argue that it is unclear whether these individuals would come from the ranks of the uninsured or shift from the pool of people with employer-based coverage. In addition, they say that the current individual market "is not prepared" to accept millions of new applicants with a variety of health conditions. If this market is to be the route to expand health insurance to more individuals, they say that Congress and states need to reform current regulations, which now make access to insurance difficult or impossible for those with chronic health problems.

Other highlights of the special Web articles:

• Harvard School of Public Health Professor Katherine Swartz looks at the role of the government as re-insurer for very high-cost people in the individual market. She says having the government assume this role for those who spend the most on health care would spread the cost burden more broadly and could result in lower premiums because carriers would spend less to avoid adverse selection. "The tax credits are a well-intentioned response to the relatively high nongroup premiums but they do not address the underlying cause of the higher premiums," she says.

• Deborah Chollet, a senior fellow at Mathematica Policy Research, looks at the role of high-risk pools for people denied coverage in the individual market. Although 30 states operate these pools, Chollet says their problems mirror what people face in the private market, including expensive coverage, long waiting periods before coverage kicks in, and limited benefits. Chollet is dubious that these will have much of an effect given that "many people still have no feasible source of coverage" and only a handful of states finance their pools adequately or require insurers to accept more risks.

• Bush administration health care adviser Mark McClellan and Dartmouth College economics professor Katherine Baicker write that the president's proposal to subsidize individuals up to $1,000 and families up to $3,000 a year would cover "a substantial portion" of individual-market insurance premiums. Because 6 million otherwise uninsured Americans would be able to buy individual policies under the proposal, according to Treasury Department estimates, a tax credit also would improve the functioning of individual markets even for people who wouldn't be able to take advantage of the tax credit.

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. Copies of the October 23, 2002 Web-exclusive issue is available on the journal's Web site, www.healthaffairs.org. Address inquiries to Jon Gardner at Health Affairs at 301-656-7401, ext. 230 or via e-mail, press@healthaffairs.org.

©2002 Project HOPE–The People-to-People Health Foundation, Inc.