Return to Emily Friedman home page

Aboard the insurance Titanic

by Emily Friedman

First published in the September 29, 2003 issue of Modern Healthcare magazine, Opinions-Commentary > Written by Emily Friedman

If you think employer coverage is worsening, try the individual market

It's always the highlight of the time around my birthday: the letter from my friendly health insurer, informing me of the latest increase in my premiums. Last year was particularly bad because my birthday ended in a 5, which means I got catapulted into a new, age-based premium tier. That increase was 29%. This year, the letter lamented the high cost of hospitalization (I was last hospitalized when I was 7) and the skyrocketing cost of pharmaceuticals (I do not have coverage for outpatient pharmaceuticals). Because of these terrible things, the letter said, my insurer had to increase my premium by 14%. That's 43% in two years--and 84% more than my premium of five years ago. I am now paying nearly $7,000 per year for what is basically major medical coverage with a $500 deductible.

Welcome to what used to be the individual insurance market, more aptly referred to these days as the Titanic of health coverage.

I am self-employed, which means that I, along with 16 million other Americans under the age of 65, must obtain and carry my own insurance. But I'm lucky; I have filed one claim in 15 years, and that was for a couple of stitches in a cut finger. Heaven help you if you are in this meltdown of a market and are chronically ill or suffer a catastrophic health event. That is, if you already have coverage--if you fall victim to one of these problems and then seek insurance, you can pretty much forget it. I have a friend who was denied coverage because of a Caesarean section she had more than 10 years earlier; she is now in her 50s and not planning on having any more kids. Another friend was denied because she had a hysterectomy for fibroid tumors many years before.

In many states, if you have individual coverage and something happens to you, one of two devastating consequences will likely ensue. One is that your premiums will rise somewhat higher than the national debt. A notorious example is the practice of some insurers in the individual market of "reunderwriting," which became known last year. It consists of drastically raising the premiums of any policyholder who files a claim. Once insurers only examined the medical histories of applicants when they first sought coverage; this new technique more or less guarantees that anyone who might possibly be considered a "bad risk" will last for one year and no more.

One insurer was reunderwriting in 20 states when the practice attracted the attention of the news media. Florida suspended the firm's license; Arkansas and Pennsylvania launched studies on how to stop the practice; and South Carolina sought to "remind" insurers that the practice is illegal in that state. Last fall, U.S. Sens. Bob Graham (D-Fla.) and Peter Fitzgerald (R-Ill.) introduced legislation that would have banned the practice nationwide. It did not pass.

Even if you are able to hang on to your coverage and pay your premiums, individual insurance is skimpy compared with most employer-provided plans, according to a recent Commonwealth Fund study by Jon Gabel and colleagues. They found that individual policies cover 63% of the average bill, as opposed to 75% for employer plans; that individual policy deductibles average $1,550 to $2,235, whereas employer plan deductibles average $138 to $354 (although employer plan deductibles are rising very rapidly). Furthermore, most employer-sponsored plans have a "stop-loss" feature that limits out-of-pocket costs for the insured; few individual plans do.

Given that there are relatively few of us (although 16 million people aren't chicken feed), the erosion and potential collapse of the individual market may not be all that big of a deal; even insurers refer to it as a "residual" market. But there are three reasons why it is a matter of concern for everyone in healthcare. First, at the rate that employers are reducing or even dropping employee coverage, more and more people are going to be forced into the individual market jungle. A recent report in the Wall Street Journal painted an even darker picture, noting that more and more employers are terminating disabled employees to save costs, which sends people with disabilities into a market that is not the least bit interested in them.

Second, in an aging nation in which few employers offer retiree coverage, those who retire early will be forced to try to obtain individual policies. Since these people are in their late 50s and early 60s, they'll find it's a tough age for seeking affordable insurance. Even when they qualify for Medicare, seniors find that most fee-for-service Medigap policies are risk-rated and expensive. And part of the Bush administration's long-term plan for Medicare is to privatize the program, which will force tens of millions of seniors to seek coverage on their own. That ought to work out really well.

Third, I can think of no worse muzzle on the American entrepreneurial spirit than a situation in which people are afraid to leave their jobs and go out on their own because they will have no health insurance if they do. How many wonderful inventions, beneficial treatments and therapies, and revolutionary technologies might we miss because we refuse to protect the people who are envisioning a better mousetrap? Is it not time we started encouraging creativity and protecting the sick, rather than stifling creativity and punishing people for being ill?

At least in the brutal environment of the individual market, it seems that healthcare does not have its priorities straight.

Return to Emily Friedman home page