Health Affairs

Editor’s Note: The post below by Jonathan Kolstad and Neeraj Sood prompted a comment from Jeff Lemieux, who directs the Policy and Research Center at America’s Health Insurance Plans, a health insurance industry group. See “Individual Market Premium Increases: The Debate Continues” for a response by Kolstad and Sood to Lemieux’s comment.

Anthem Blue Cross of California, the largest health insurance company in California, recently announced plans to increase insurance premiums by as much as 39 percent for people insured in their non-group health insurance plans. This dramatic and unprecedented premium increase has received substantial media attention as well as scrutiny and ire from policymakers and consumer groups.

In the cross fire of accusations, two very different stories have unfolded. Anthem Blue Cross of California explains the significant increase in premiums as primarily a response to changes in health and expected medical care costs of the pool of insured. The argument is that the recession, unemployment in particular, has exacerbated what health economists refer to as “adverse selection” in the individual insurance market. Relatively healthy individuals who are facing economic hardship have dropped coverage. The remaining pool of insured is less healthy and more costly. 

Policymakers and consumer groups, view these claims with skepticism. They blame corporate greed and  profiteering as the reasons for such egregious premium increases that are well above general  medical inflation. With rising unemployment and economic hardship, the pool of people willing to continue purchasing individual health insurance coverage might be those who are insensitive to price increases such as people with higher incomes or those who are relatively risk averse. In that case, the large increases in rates could just reflect efforts to increase profit in the face of new market conditions.

Politics and posturing aside, both arguments seem plausible. We thus turn to the data on the population with non-group insurance coverage to better understand what is behind the extraordinary increase in premiums for individual health insurance. Our specific aim is to determine whether there is any significant change in attributes associated with health care cost.

What Do The Data Show?

We use data from the March Current Population Survey (CPS) from 2007 and 2009. The CPS is a nationally representative survey of U.S. households and is the primary source of information on the U.S. labor force. We compare characteristics of the population with non-group health insurance in 2007 and 2009 to capture the pre- and the post-recession insurance market equilibrium. In March of 2007, unemployment was 4.4 percent, the lowest point since 2000 and the lowest rate of the recent boom. By March of 2009, unemployment had more than doubled to a national average of 8.6 percent and was on its way to a high of 10.1 percent in October of 2009. Using the CPS data, we compare the age, gender, self reported health status, income and education of the pool of people with non-group health insurance coverage. Table 1 presents these results.

If premium increases in the individual market are being driven by changes in the composition of risk, this should be apparent in changes in observable factors that are correlated with health care costs. However, we see no statistically significant change in the mean age or gender composition in the individually insured population in California or the nation as a whole. There are only small changes in the composition of the individual market by self reported health status. There is a slight increase in the percent of the insured reporting that they are in “good” health and a decline in individuals reporting they are in “very good” health. 

To supplement the analysis, we estimate a model of medical expenditures using the 2007 Medical Expenditure Panel Survey (MEPS), a nationally representative sample of the U.S. non-institutionalized population. We used three standard approaches:  ordinary least square (OLS) regression, two-part models and generalized linear models (GLM) to predict medical expenditures as a function of age, gender and self reported health. We report results from the OLS model as it performed better than the others in predicting health care costs, however the results are robust to alternate model specifications.  While we do not have information on objective measures of health, we note that a substantial body of research has documented a strong correlation between self reported health and objective measures of health and health care use.

Using the estimates from our model, we then predict expenditures in the CPS population. We use these individual level predictions to compute expected cost among the population in the individual market in 2007 and 2009. The difference in predicted or expected medical spending in 2007 and 2009 is not significantly different in the national sample or in California.  

Table 1 also presents measures of the average hourly wage (for hourly workers), household income (for salaried workers) and education level of individuals enrolled in non-group insurance plans. As with age, gender, health and expenditures, we see little change following the recession. At the national level, there was an increase in income among salaried workers enrolled in non-group insurance plans. We also note the significant increase in college educated enrollees in 2009.

We also investigated whether the size of the non-group market had changed dramatically following the recession. However, we found no statistically significant difference in the number of persons with non-group health insurance plans, nationally and in California – between 2007 and 2009 the number of people with non-group health insurance decreased by 1.1% and 0.9% in the U.S. and California respectively.

Little Evidence That The Recession Has Changed The Non-Group Insurance Risk Pool

In conclusion, there is little evidence of a change in composition and size of the non-group insurance market between 2007, prior to the recession, and March of 2009, near the bottom of the recession. There is also little evidence that overall expected health expenditures among those with non-group coverage changed. While we cannot rule out differences in the risk and age profiles of the populations insured by the specific companies that are increasing rates (e.g. Anthem Blue Cross), our results are inconsistent with a broad impact of the recession on the non-group insurance pool.

This entry was posted on Friday, March 12th, 2010 at 1:29 pm and is filed under All Categories, Consumers, Insurance, Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.