"Individual Market Reforms: Data for a Few More PowerPoint slides" by Nancy Turnbull

Note to readers: I am a member of the board of the Connector.

One of the goals of Chapter 58 is to make health insurance more affordable for people who buy it directly from insurers. The market for people who buy their own coverage (referred to as the “individual market” or the “nongroup market”) has a troubled history of expensive premiums, limited benefits, and lack of coverage for people with preexisting health conditions. In the 1990s, Massachusetts, like many states, enacted reforms to the individual market to improve availability and affordability of coverage. These reforms included requiring carriers to sell coverage to all applicants regardless of health, adopting standardized benefit packages, and placing limits on permissible rating factors and rate variation.

Chapter 58 continued this history of reform by merging the individual and small employer markets (so that premium rates in the individual market would be based on a larger and more diverse pool of people) and encouraging the development of range of new products.

So far, the only data I’ve seen about how these reforms have affected the individual market is one PowerPoint slide that compares the cost and comprehensiveness of coverage for a 37-year-old before and after reform. The slide shows that this 37-year-old can now get much better coverage for half the cost (a deductible of $2000 vs. $5,000, drug coverage, preventive and emergency care before the deductible, and a monthly premium of $175 vs. $335 before reform). Impressive progress indeed.

But after seeing this PowerPoint slide yet again at a conference out-of-state, and presented yet again by a national health policy person who had no connection to Massachusetts, I decided it was time to add at a few more data points to the discussion about the individual market reforms in Chapter 58.

I hope there’s a study underway that will provide a more rigorous and detailed evaluation of this aspect of reform. But until then, here are my quick and dirty methodology and results.

To get a baseline for pre-reform premiums in the nongroup market, I used a Division of Insurance report on the individual/nongroup products and rates that were available in Massachusetts on December 1, 2006. Since individual premiums in the individual market vary by age and geography, this report shows sample premiums for 3 different ages and family configurations in the Boston area: a single 25-year-old; a married couple with 2 children (both spouses are 35-years-old); and an older couple (one person is 63 years old and the other is 60 years old). In 2006, the products in the nongroup market were standardized and quite comprehensive, although several carriers had obtained DoI approval to offer products with higher cost-sharing and fewer benefits.

Then I went to the Connector’s website and got current Commonwealth Choice premium rates for these same family configurations as of October, 2008. Four insurers (Blue Cross Blue Shield HMO Blue, Harvard Pilgrim Health Care, Neighborhood Health Plan, and Tufts Health Plan) offer Commonwealth Choice products in Boston. Each carrier offers Bronze, Silver and Gold products. I took the premium rates for the least costly benefit package for each product type for someone living in the 02108 zip code. The results are shown in the table below. (Only Bronze and Gold are shown in the table. I didn’t include the Young Adult Plans because they have limited coverage and nothing similar was available in 2006.)

As you can see, in almost every case premium rates are much lower in 2008 than in 2006. The best apples-to-apples comparison is between the standardized products from 2006 and the Gold product since both have comprehensive coverage with relatively low cost-sharing. In almost every case, the 2008 premium rates for Gold are lower than the rates in 2006. This result is all the more impressive because we’ve had nearly two years of inflation in health insurance cost in this period. If inflation is factored in, the differences are much more dramatic. The last column in the table shows the change in premiums assuming that the 2006 premium rates would have risen at 8% per year—perhaps a somewhat conservative assumption given actual inflation in health insurance rate.

Although I didn’t include these results in the table, the cost of less comprehensive coverage has also fallen significantly. Both HPHC and HMO Blue offered “low-option” products in the nongroup market in 2006. These plans had more cost-sharing and less comprehensive benefits (in some cases, no coverage for prescription drugs). I calculated that the 2008 premiums for the Bronze products, which all include drug coverage, are 20-30% lower than the 2006 premiums for the low-option plans. When inflation is factored in, the Bronze products are 30-40% less expensive.

In addition to lower premiums, consumers have a much wider range of products and prices available, not only through the Connector but directly from insurers or through brokers. Finding out about options is also much easier since the Connector’s website, and those of some carriers, makes it easy to compare plans and premiums. The only comparative information that was available in the past for those shopping in the nongroup market was the Division of Insurance report, which was a start but didn’t provide age-specific premium rates or detail about products.

So, the market merger, the development of new products, the Connector’s role as a negotiator and facilitator, and the individual mandate seem to be making a huge difference in the products and premiums available in the nongroup market. The individual mandate is an important factor in helping to moderate premiums by bringing new people into the insurance market.

But despite this progress, it’s certainly worth noting that nongroup premiums are still extraordinarily expensive, particularly compared to the amounts that most of us pay to get coverage through our employers.

A couple of questions I think are worthy of more discussion:
Why are there such large price differences for Commonwealth Choice products with the same actuarial value? There is a difference of 20-30% in the premiums that different insurers charge for the Bronze product for the same family configuration, and 25-40% differences for Gold. Are these differences related to differences in risk pools, rating methodology, costs of doing business, or profitability? Given that these rates are now based on the combined experience of each insurer’s entire small group and nongroup business, both inside and outside the Connector, it’s hard to understand why the premium differences are so large for products with the same actuarial value.

Is it time to talk about community rating? While nongroup coverage may be less expensive, it certainly isn’t affordable, at least for families and older people and those who want comprehensive products. One reason is age rating. Massachusetts law wisely limits the rate variation that can be imposed because of age to a factor of 2:1 (i.e., an insurer can’t charge the oldest person more than twice the rate of the youngest person for the same type of coverage). This is better than in most states but it still creates affordability problems for older people simply because of age. The classic rationale for age rating in the nongroup market is that it makes coverage more affordable and attractive for younger people, who would be less likely to purchase insurance voluntarily if they had to pay the same premium as older people. But the individual mandate has now eliminated health insurance as a voluntary choice for most people. Those of us who are fortunate enough to have employer coverage don’t pay higher premiums as we get older. Now that we have an individual mandate, should we reconsider allowing age rating in the nongroup market?

Monthly Premiums in Nongroup Market:  December 2006 vs. October 2008

2006: Standard Plan2008:

Gold Plan

Bronze Plan
% change

Gold vs. 2006 Plan
% change:  8% annual inflation added to 2006 Plan
HMO Blue$528$470$255-11%-23%
Family (2 kids, 35-year-old parents)
HMO Blue$1248$1660$902+33%+16%
Couple in 60s
HMO Blue$1888$1879$10200-14%

*Rate is for one adult and one parent with children

Nancy Turnbull
Harvard School of Public Health

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Martha Bebinger Reporter
Martha Bebinger covers health care and other general assignments for WBUR.



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