Individual Health Insurance
March 5, 2009 by Jack
The individual insurance (“nongroup”) market is often referred to as a “residual” market. The reason being that this market provides coverage to persons who cannot obtain health insurance through the workplace and do not qualify for public programs such as Medicare, Medicaid, or SCHIP. Consequently, the enrollee population for this private health insurance market is small.
The residual nature of the nongroup market is evident in the demographic makeup of those who purchase coverage from it. The market is over-represented by the near elderly (55-64 years old); a group that has relatively weak attachments to the workplace. The individual market disproportionately consists of part-time workers, part-year workers, and the self-employed, groups unlikely to have access to ESI coverage.19 Also, some people use the nongroup market as a temporary source of coverage, such as those in-between jobs or early retirees who are not yet eligible for Medicare.
Applicants to the individual insurance market must go through robust underwriting. Insurance carriers in most states conduct an exhaustive analysis of each applicant’s insurability. An applicant usually must provide her/his medical history, and often undergo a physical exam. This information is used by carriers to assess the potential medical claims for each person. Federal and state requirements restrict somewhat insurers’ ability to reject applications or design coverage based on health factors (such as benefit exclusions for certain pre-existing health conditions).
Nonetheless, some applicants are rejected from the nongroup market altogether, and others who are approved may receive limited benefits or are charged premiums that are higher than those in the group market for similar coverage.20 Rigorous underwriting results in an enrollee population that is fairly healthy (three out of four enrollees report that their health is excellent or very good),21 thereby excluding persons with moderate to severe health problems from the private nongroup insurance market.
