Health plans eye individual insurance market

Health plans are trying to make lemonade out of the lemon of an economy that has soured their core business. To juice their earnings, they are turning their focus on making money in the individual health insurance market.

The recession is creating more uninsured and, more important to insurers' bottom lines, cutting the number of people getting insurance through their employers. By the latest U.S. Census Bureau estimate, 26.7 million people were covered by "direct-purchase" insurance in 2007. According to the Kaiser Family Foundation, for every 1% increase in the unemployment rate, an estimated 1.1 million become uninsured, and another 1 million become eligible for Medicaid or State Children's Health Insurance Program.

As health plans see it, with every layoff and cutback, the number of potential individual buyers grows. And although current conditions have kept many out of the individual market, health plans are guessing that national reform efforts could get more of the estimated 46 million uninsured signed up for individual plans.

"It's pretty clear to us that the individual market is going to be an important part of reducing the number of uninsureds over the next several years in one way, shape, or form," Cigna Chair and Chief Executive Officer H. Edward Hanway told industry analysts in November 2008.

Cigna last year became the last of the seven major publicly traded plans to enter the individual market and this year plans to expand beyond the five states where it first offered those policies.

Cigna isn't alone in angling for a good position in the individual market. UnitedHealth Group is offering a plan where customers can lock in the right to buy individual insurance when they are sick and might need it. And Highmark Inc., operator of a BlueCross BlueShield plan in western Pennsylvania, is opening retail locations at strip malls in Pittsburgh and Mechanicsburg, Pa.

Any growth in the individual market would likely be a help to insurers' sagging profits.

According to a June 2008 McKinsey & Co. report, the revenue growth in individual insurance is 2½ times greater than for employer-based insurance, while the profit growth is 1½ times greater.

A booster shot for health plans

Nearly all of the publicly traded insurers reported profits fell in the third quarter of 2008 compared with 2007, and blamed in part the declining economy and resulting drop in the number of workers buying insurance through their employer.

Though national reform driving customers to the individual market could prove to be a saving grace for insurers, there is no guarantee it will be.

One problem health plans face is predicting whether products they are selling today will survive national health system reform, said Mark V. Pauly, PhD, health care management professor at the Wharton School of the University of Pennsylvania. "There's still an enormous amount of uncertainty," he said.

Plans are stepping ahead despite the uncertainty.

The UnitedHealth Continuity policy, first offered in December 2008, is being pitched not only at individual buyers, but potential individual policy buyers.

United spokeswoman Ellen Laden said that on average across markets and products, a person who currently has group coverage could pay about $2 a day -- $60 per month -- to keep the option of buying insurance if she were laid off or lost group coverage for another reason. The cost of the policy depends on what type of policy the member wants to reserve as well as his or her age and location, she said.

However, the policy only guarantees an individual the right to buy coverage. It does not limit the price for that future individual health policy, Laden said.

Health plans also are trying to sell Congress on the promise of the individual market.

As part of a Dec. 3, 2008, proposal, the trade group America's Health Insurance Plans would have every health plan agree to sell to individuals with preexisting conditions -- as long as Congress requires individuals to buy insurance.

Not an easy market

Individual insurance has been a tough sell for health plans in recent years because of its high cost relative to group plans and because of how some insurers attempted to weed out those who used it.

A single policy can cost as much as $5,000 a month depending on the age of the member and where he or she lives, according to a Kaiser report released in February 2008.

"There's definitely a concern about whether people will be able to afford it," said Debra Donahue, vice president for market analytics and online products at Mark Farrah Associates, a health care business research firm based in Kennebunk, Maine.

Meanwhile, several California insurance companies have paid millions of dollars in fines to the state as penalty for alleged abuses of insurers' ability to rescind policies based on what they saw as material omissions on members' application, but what regulators saw as nitpicking for the purpose of not having to pay expensive claims.

AMA Board of Trustees member Joseph P. Annis, MD, an anesthesiologist, said the individual market can work for patients only if the price is comparable to group plans and if insurers are barred from dropping individuals with catastrophic health costs.

AMA policy supports, in addition to the current employer-based network, using advanceable, refundable tax credits for patients to buy insurance, with the policies portable across state lines.

"What you're going to have to do to make this work is you're going to have to change a lot of state policies to allow plans to be portable from state to state. Yet we think it's important to maintain some state regulations. Different areas of the country have different needs ... [but] you clearly need some overarching general principles," said Dr. Annis.