Group vs. individual health insurance: Time to break down the wall?
Removing boundaries among health insurance segments could enhance consumer options, according to a recent Commonwealth Fund study.
The commercial health insurance market traditionally been divided into three segments – individual, small group and large group. A new study from the Commonwealth Fund suggests that removing these boundaries may increase consumer options.
Until recently, many policymakers believed it was important to keep these market borders distinct to prevent opportunistic “border crossings” that exploit regulatory gaps and loopholes. Under the Affordable Care Act, however, the individual vs. small-group distinction is now much less important. It no longer is the case that an employee would receive inferior coverage if relegated to the individual market, nor would an individual encounter a substantially different set of market rules and conditions. The major difference remaining is simply the price of insurance.
Related: 4 characteristics of non-group health insurance enrollees
Initially following ACA implementation, strong competition resulted in individual coverage premiums often being significantly lower than premiums for equivalent coverage in the small-group market. Because insurers had underestimated the medical needs of new enrollees, they then had to substantially increase rates to levels higher than small-group rates, which had increased more moderately. Most recently, however, individual insurers realized they had overcorrected and premiums have leveled off. With small-group premiums continuing to increase along with medical costs, the prices in the two market segments now resemble each other much more than in the past.
Because market conditions can vary by location, consumer options could be enhanced by providing select opportunities to cross this market border in either direction. Self-employed individuals might find better unsubsidized prices as a “group of one” in the small-group market. Or small firms might be able to provide lower-cost coverage by subsidizing workers’ purchase of individual insurance. Moreover, bringing more employer-subsidized purchasers into the individual market could stimulate more innovation and competition among insurers.
“For small businesses to take full advantage of these opportunities, however, tax and regulatory rules need streamlining and simplification,” the study concluded. “The time may be right to rethink and redesign these policies in a way that avoids regulatory strictures designed to address problems that no longer exist.”
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