Trends And Variability In Individual Insurance Products In California

An economic history of Medicare part C

CONTEXT

Twenty-five years ago, private insurance plans were introduced into the Medicare program with the stated dual aims of (1) giving beneficiaries a choice of health insurance plans beyond the fee-for-service Medicare program and (2) transferring to the Medicare program the efficiencies and cost savings achieved by managed care in the private sector.

METHODS

In this article we review the economic history of Medicare Part C, known today as Medicare Advantage, focusing on the impact of major changes in the program's structure and of plan payment methods on trends in the availability of private plans, plan enrollment, and Medicare spending. Additionally, we compare the experience of Medicare Advantage and of employer-sponsored health insurance with managed care over the same time period.

FINDINGS

Beneficiaries' access to private plans has been inconsistent over the program's history, with higher plan payments resulting in greater choice and enrollment and vice versa. But Medicare Advantage generally has cost more than the traditional Medicare program, an overpayment that has increased in recent years.

CONCLUSIONS

Major changes in Medicare Advantage's payment rules are needed in order to simultaneously encourage the participation of private plans, the provision of high-quality care, and to save Medicare money.

The role of product design in consumers' choices in the individual insurance market

OBJECTIVE

To evaluate the role of health plan benefit design and price on consumers' decisions to purchase health insurance in the nongroup market and their choice of plan.

DATA SOURCES AND STUDY SETTING

Administrative data from the three largest nongroup insurers in California and survey data about those insured in the nongroup market and the uninsured in California.

STUDY DESIGN

We fit a nested logit model to examine the effects of plan characteristics on consumer choice while accounting for substitutability among certain groups of products.

PRINCIPAL FINDINGS

Product choice is quite sensitive to price. A 10 percent decrease in the price of a product would increase its market share by about 20 percent. However, a 10 percent decrease in prices of all products would only increase overall market participation by about 4 percent. Changes in the generosity of coverage will also affect product choice, but have only small effects on overall participation. A 20 percent decrease in the deductible or maximum out-of-pocket payment of all plans would increase participation by about 0.3-0.5 percent. Perceived information search costs and other nonprice barriers have substantial effects on purchase of nongroup coverage.

CONCLUSIONS

Modest subsidies will have small effects on purchase in the nongroup market. New product designs with higher deductibles are likely to be more attractive to healthy purchasers, but the new benefit designs are likely to have only small effects on market participation. In contrast, consumer education efforts have a role to play in helping to expand coverage.

Trends in the golden state: small-group premiums rise sharply while actuarial values for individual coverage plummet

Using multiple databases, this paper examines recent trends in the affordability and comprehensiveness of small-group and individual health insurance markets in California. Both became less affordable over the study period. In 2006, a single person age 32-52 earning the median income who purchased individual insurance spent on average 16 percent of income on premiums and out-of-pocket medical expenses. For individual insurance, the share of medical expenses paid by insurance as opposed to patients declined from 2002 to 2006. In the small-group market, premiums rose more than 50 percent from 2003 to 2006, but the proportion of claims paid by insurers for a standardized population remained constant.

How much risk pooling is there in the individual insurance market?

OBJECTIVE

To examine how much pooling of risks occurs among potential purchasers in the individual market, how much pooling occurs among those who purchase coverage, and whether there is greater pooling among longer-term enrollees.

DATA SOURCES

The data are administrative records for enrollees in individual insurance plans in California in 2001, and from a survey of Californians enrolled in the individual insurance market and the uninsured.

STUDY DESIGN

Logit models were estimated for 5 health outcome measures to compare the insured and uninsured after adjusting for other factors that affect insurance status and health. Multivariate models were also estimated to explore the relationship between health and three measures of pooling in the market: plan type, pricing tier, and the actuarially adjusted premium paid by the enrollee.

PRINCIPAL FINDINGS

Those who purchase individual health insurance are in better health than those who remain uninsured. On the other hand, a large share of people with health problems does obtain individual insurance. The distribution of subscribers across plan type and pricing tier varies with their health status. Those in poor health are less likely to purchase low benefit plans. There is less separation of risks for those who become sick after enrollment based on the measure of pricing tier. The distribution of subscribers across plan type for those who have health problems at enrollment and those who become sick differs, but so does the distribution of those who become sick and those who remain healthy.

CONCLUSIONS

Despite small differences among the healthy and sick, our results support the conclusion that there is considerable risk pooling in the individual market. To some extent, this pooling occurs because underwriting happens at the time people enroll and there is greater pooling among those who become sick than those who enroll sick. Our results however suggest that health savings accounts may further fragment the market.

The California Cost and Coverage Model: analyses of the financial impacts of benefit mandates for the California legislature

OBJECTIVE

To produce cost estimates of proposed health insurance benefit mandates for the California legislature.

DATA SOURCES

The 2001 California Health Interview Survey, 2002 Kaiser Family Foundation/Health Research and Education Trust California Employer Health Benefits Survey, Milliman Health Cost Guidelines, and ad hoc surveys of large health plans were used.

STUDY DESIGN

We developed an actuarial model to estimate short-term (1 year) changes in utilization and total health care expenditures, including insurance premiums and out-of-pocket expenditures, if insurance mandates were enacted. This model includes baseline estimates of current coverage and total current expenditures for each proposed mandate.

PRINCIPAL FINDINGS

Analysis of seven legislative proposals indicated 1-year increases in total health care expenditures among the insured population in California ranging from 0.006 to 0.200 percent. Even when proposed mandates were expected to reach a large target group, either utilization or cost was sufficiently low to keep total cost increases minimal.

CONCLUSIONS

Our ability to develop a California-specific model to estimate the impacts of proposed mandates in a timely fashion provided California legislators during the 2004 legislative session with more-detailed coverage and cost information than is generally available to legislative bodies.

Consumer Decision Making In The Individual Health Insurance Market

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.

Subsidies and the demand for individual health insurance in California

OBJECTIVE

To estimate the effect of changes in premiums for individual insurance on decisions to purchase individual insurance and how this price response varies among subgroups of the population.

DATA SOURCE

Survey responses from the Current Population Survey (http://www.bls.census.gov/cps/cpsmain.htm), the Survey of Income and Program Participation (http://www.sipp.census.gov/sipp), the National Health Interview Survey (http://www.cdc.gov/nchs/nhis.htm), and data about premiums and plans offered in the individual insurance market in California, 1996-2001.

STUDY DESIGN

A logit model was used to estimate the decisions to purchase individual insurance by families without access to group insurance. This was modeled as a function of premiums, controlling for family characteristics and other characteristics of the market. A multinomial model was used to estimate the choice between group coverage, individual coverage, and remaining uninsured for workers offered group coverage as a function of premiums for individual insurance and out-of-pocket costs of group coverage.

PRINCIPAL FINDINGS

The elasticity of demand for individual insurance by those without access to group insurance is about -.2 to -.4, as has been found in earlier studies. However, there are substantial differences in price responses among subgroups with low-income, young, and self-employed families showing the greatest response. Among workers offered group insurance, a decrease in individual premiums has very small effects on the choice to purchase individual coverage versus group coverage.

CONCLUSIONS

Subsidy programs may make insurance more affordable for some families, but even sizeable subsidies are unlikely to solve the problem of the uninsured. We do not find evidence that subsidies to individual insurance will produce an unraveling of the employer-based health insurance system.