California Health Insurance Coverage Is Becoming Less Affordable

Some healthcare reform advocates -- including President Bush -- have suggested moving all Americans out of employer-based health insurance and into plans purchased on the individual market, arguing that more choices for consumers will lead to lower premiums.

In California, individual insurance premiums do seem to be increasing at a slower rate than small-group market premiums, according to the study appearing Thursday on the Web site of the journal Health Affairs.

But the trade-off for lower premiums is steep reductions in benefits, the study found.

Between 2003 and 2006, premiums for employees of small businesses rose 53 percent from $250 to $382, while premiums in the individual market increased only 23 percent to $259.

However, individual-market policies paid 75 percent of medical costs on average in 2003 but only 55 percent in 2006. In contrast, small-group policies retained their actuarial value, paying for roughly 83 percent of medical expenses across the period.

What's more, individual-market enrollees faced much higher cost-sharing in 2006 than their small-group-market counterparts. The average deductible in the individual market was $2,136, more than six times the size of the average small-group-market deductible of $348.

"If you look only at premiums, individual coverage in California looks like a good deal, while small-group coverage looks increasingly expensive" said study author Jon Gabel, a senior fellow at NORC in Washington. "However, if you consider all out-of-pocket expenses facing policyholders, individual coverage in California is growing more unaffordable as fast as, and in fact even faster than, small-group coverage."

One possible explanation for the difference, the authors said, is the different way that consumers shop for individual and small-group health insurance. Individual purchasers, they found, care much more about price -- even if it means sacrificing benefits.

On the other hand, bare-bones products with lower premiums but skimpier coverage and high out-of-pocket costs have not sold well in the small-group market.

Advocates of employer- and government-based universal healthcare coverage say such premium increases and steep benefit cuts illustrate why relying on individual and small-group insurance to cover the uninsured is a bad idea.

"The individual and small-group markets are the most troublesome from the perspective of consumers," said Ron Pollack, executive director of Families USA, a healthcare consumer advocacy group. "Costs are considerably higher and they are most vulnerable to changes."

If everyone is moved into the individual market "the situation will go from bad to worse," Pollack told United Press International. "We should be promoting coverage where groups are large and risks can be spread out."

But supporters of the individual insurance market say the study results are a sign they are working.

"This is how it's supposed to work," Michael Cannon, director of health policy studies at the Cato Institute, told UPI.

"If the cost of healthcare goes up, the cost of insurance goes up," Cannon said. "That makes consumers pare back their coverage which encourages them to keep healthcare costs down."

In the small-group market, where employers and not consumers choose what level of coverage to buy, premiums must increase to compensate, even if employees would rather pay less for less comprehensive insurance.

A better idea would be to pay employees the cost of health insurance in salary and let them decide how much coverage is best for them, he said.

Dr. Ankush Vidyarthi