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The Individual Insurance Market

Performance & Potential

Summary of Seminar for State Executive and Legislative Officials

This seminar offered State executive and legislative officials and senior-level State policymakers information to develop a better understanding of the individual insurance market and the impact that reforms implemented have had to date. It was held in Atlanta, Georgia, May 3-4, 1999.

About the Workshop Sponsor.


Declines in employer-based insurance and insurer responses to the Federal Health Insurance Portability and Accountability Act (HIPAA) have highlighted deficiencies in the individual insurance market. The combined effect has catalyzed policy discussions about how the individual market might be reformed or augmented to better serve those purchasing coverage in that market.

For example, recent debate has included talk of enacting incentives to encourage broader participation in the individual market and, therefore, broader spreading of risk. Such incentives might include making the premium tax deduction for individuals comparable to the tax incentives for employment-based coverage.

In addition, many States have enacted reforms to address problems of access (including risk selection) and affordability. These reforms range from rules governing insurance pricing and guaranteed issue to facilitating pooling arrangements. HIPAA also took a modest step toward addressing problems of access (for people leaving group coverage) but did not address problems of affordability.

Consumers in the individual market are presumed to be unable to purchase health insurance through a group. Some are self-employed, retired, or unable to work; most are workers whose employers do not offer coverage. Individual insurance consumers are, on average, significantly older than workers and their dependents with group coverage, the average costs of marketing and administration are greater, and unmanaged fee-for-service insurance products dominate. As a result, premiums in the individual market typically are higher than those in the group market for similar benefits. In addition, the tax subsidies to workers insured in the group market are unavailable to consumers in the individual market. Taken together, these factors make individual insurance products unaffordable to many, possibly increasing the ranks of the uninsured.

The seminar used examples of several States to illustrate successes and failures of reform activities in this market. In addition, it addressed the likely impact on the individual market of policy proposals recently enacted or being discussed, including amending HIPAA to restrict health insurance rate variation, increasing tax deductions for individuals, creating "health marts," and offering individual purchasers under age 65 a plan with benefits similar to those offered under Medicare.


The seminar attempted to address the following kinds of questions:

  • Structure of the Individual Insurance Market: What does the individual insurance market look like now? Who is buying? What benefits are included? How much choice does the purchaser have? What problems have been identified (e.g., risk selection, price) in the market? In general, what factors drive participation rates in the individual insurance market, and what kinds of reforms might improve participation?
  • Market Dynamics: How is the individual insurance market different from the small group market? Why do insurers behave differently in the individual insurance market? Is there evidence of adverse selection in this market?
  • Regulatory Reforms: What attempts have been made to improve the individual insurance market and what are the impacts to date of HIPAA and State reform efforts such as those in New Jersey, New York, and Washington? Is there evidence that these reforms address the problems and/or the needs of the uninsured? What are the effects of statewide reforms on insurance agents and brokers in the individual insurance market?
  • Policy Options: What are the possible impacts of various policy interventions? What problems are likely to be fixed by encouraging more people to purchase in the individual insurance market?


The participants for this seminar included senior-level State officials in the executive or legislative branches of government who are responsible for policy development and/or implementation related to health insurance regulation, market reforms, and strategies to improve access and affordability of health coverage. Represented at the seminar were State health care administrators, State insurance department officials, State legislators, State Medicaid administrators, health policy specialists, and economists.

Workshop Sessions


The User Liaison Program (ULP) disseminates health services research findings in easily understandable and usable formats through interactive workshops. Workshops and other support are planned to meet the needs of Federal, State, and local policymakers, and other health services research users, such as purchasers, administrators, and health plans.

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