individual health insurance is a good (and affordable) choice

By GUY BOULTON

gboulton@journalsentinel.com

Posted: April 16, 2005



Greg Wilkinson was wary of losing his employer's generous health insurance benefits when he first gave thought to striking out on his own as a marketing consultant.



His employer, Microsoft Corp., paid the entire cost of a family policy, with no co-payments or deductible. But when Wilkinson looked into buying insurance, the Pewaukee resident was surprised by the relatively low cost. For $300 a month, he could buy a policy with a $4,000 deductible that covered the family of four.



"Admittedly, I'm partially self-insured," Wilkinson said. "But it's not as bad as I thought it was going to be by any stretch of imagination."



Wilkinson - relatively young at 42, healthy and self-employed - was an ideal candidate for buying health insurance in the so-called individual market. That market is dwarfed by the market for group insurance offered as an employee benefit. But insurance companies are starting to see people such as Wilkinson and his family as a potential growth market.



The trends are clear. Each year, the number of employers offering health benefits steadily declines. More people are self-employed. And companies now make greater use of contract and temporary workers, who typically don't get benefits.



What those trends mean is that more people could be buying health insurance the same way they buy auto or homeowner's insurance.



Individual health insurance is Blue Cross Blue Shield of Wisconsin's fastest-growing business unit, said Penny Siewert, general manager of individual and small group business. As of Dec. 31, the company had 46,000 people insured through individual health plans, an 18% increase from 2003.



In Wisconsin, the market grew by an estimated 44,717 people from 2000 to 2003, according to an analysis commissioned by the Henry J. Kaiser Family Foundation, which does research on health policy issues.



That analysis estimated that 281,270 people, or roughly 5% of the state's population, in 2004 had health insurance through the individual market. Nationally, an estimated 17 million people, or 6.7% of the population, are covered by individual health insurance. This figure includes people who buy short-term policies.



Most people still get insurance through their employer - an estimated 75% of people ages 18 to 64 in Wisconsin in 2003, according to state figures. And no one expects explosive growth in the individual market. But for some people - those with good health and a good income - individual health insurance can be an affordable option.



The costs vary with age, deductible, maximum out-of-pocket expenses and a raft of other details. A healthy 35-year-old female, for example, can buy a policy with a $2,500 deductible for less than $200 a month. Family coverage, of course, is more expensive. For a healthy family of four, a similar policy costs about $350 a month, or $4,200 a year.



The catch is you have to be healthy. For people with pre-existing medical conditions, such as diabetes or asthma, the cost can soar. In most states, including Wisconsin, insurers can impose permanent exclusions for pre-existing medical conditions. And the cost - even for those young and healthy - is too high for people on limited incomes.



A partial solution

In short, most experts agree that individual health insurance is not the solution to the rising number of uninsured. But Siewert, of Blue Cross, said the policies could be part of the solution.



"The biggest issue is educating people that there are products out there," Siewert said.



Three years ago, Blue Cross' market research found that many people didn't know the policies were available.



"The general population doesn't realize that it can be an affordable alternative," she said.



When Theresa Leben, who lives near Wales, went to work for Unplanned Pregnancy Connection, she continued buying health insurance through her former employer - at a cost of $1,000 a month.



The non-profit group didn't offer family coverage, and her husband is self-employed. Nine months and $9,000 later, a friend talked to her about buying a family plan with a high deductible. The cost: about $350 a month.



"I didn't know there were other options out there," Leben said.



Leben and her family chose a plan with a Health Savings Account, which allows people to set aside pre-tax dollars to pay for medical expenses not covered by high-deductible health insurance.



President Bush has touted individual health insurance with HSAs as one of the ways to lower the number of people without health insurance. That has generated more interest in individual health plans.



But the biggest driver may be that more employers are no longer offering health insurance as a benefit.



The Kaiser Family Foundation estimates that there were at least 5 million fewer jobs providing health insurance in 2004 than in 2001.



In addition, some employers no longer pay part of the cost of family coverage. For that reason, some families are finding that insurance in the individual market costs less than insurance offered by an employer, said Bob Hurley, who oversees customer service for eHealthInsurance Inc., an online broker in Mountain View, Calif.



Early retirees are another potential market. So, too, is the roughly one-third of the uninsured with incomes of more than $50,000 a year.



How many of those people have pre-existing medical conditions that render insurance unaffordable isn't known.



Sorting through the options

Tod Zacharias, president of HumanaOne, a unit of Humana Inc. based in Waukesha, expects slow but steady growth.



Humana, which entered the market in June 2002, now has more than 125,000 people insured through individual policies in 15 states, including Wisconsin. That's up from 55,000 people at the end of 2003.



Other companies selling individual health insurance include UnitedHealth Group Inc. through its Golden Rule subsidiary, Assurant Inc., American Medical Security Group Inc., Guardian Life Insurance Co. of America, Wisconsin Physicians Service Insurance Corp. and Celtic Insurance Co.



The number of companies - each offering an array of products - adds to the confusion.



"These are individual policies - the correct solutions are individual solutions," said James Mueller, president and chief executive of Frank F. Haack & Associates Inc., a Wauwatosa insurance broker and benefits consultant.



Mueller generally recommends policies with a high deductible - up to a point. The key is affordability. And people must consider both the monthly premium and the size of the deductible.



The policies are more expensive than insurance available through an employer. Anyone buying insurance in the individual market must pay the entire cost of the policy.



In contrast, roughly three out of four employers pay 75% or more of the cost of single coverage, according to the Kaiser Family Foundation. And roughly one in two pays 75% of the cost of family coverage.



That benefit is tax-free to employees, and their share of the cost is paid with pre-tax dollars.



Those tax benefits don't exist for individual insurance, although people who are self-employed can deduct the full cost of the policies.



Further, the policies are simply too expensive for low-wage workers, who make up 66% of the uninsured. A family of four with an income of $37,700 a year - double the federal poverty level - rarely can afford $4,200 a year for health insurance.



The premium is just one component. There is also the deductible. An individual making $50,000 a year can come up with $750 for a medical test. For someone making $25,000 a year, it's a crisis.



Bush has proposed tax credits of $1,000 a year for low-income workers to buy health insurance with Health Savings Accounts. But the proposal has gone nowhere, given the size of the federal budget deficit.



"I'm not even sure it's an active proposal at this point," said Deborah Chollet, an economist and health care analyst with Mathematica Policy Research Inc. in Washington.



In addition, most policy analysts contend the proposed credit is too small to make much of a dent in the number of people without insurance.



"No one believes the amount of credit proposed was anywhere near adequate," Chollet said.



Others echo that.



"It will help at the margin, but it will not address the problem of the uninsured," said Paul Fronstin, director of health research and education at the Employee Benefit Research Institute.



For those and other reasons, individual health insurance won't replace group insurance. But for a segment of the population - whether by necessity or choice - it is an option. Those people tend to be healthy and have a good income. And what they are buying is insurance - not health care.



But for a small but growing segment of the market, the cost is worth the peace of mind.



That's what Wilkinson, the former Microsoft employee, basically is buying.



"If something really bad was to happen," he said, "I'm insured."