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The Individual Insurance Market



Deborah Chollet, Vice President, Alpha Center.

To set a context for the workshop, Deborah Chollet presented an overview of what is known about buyers and sellers of individual insurance. She began by pointing out that although the individual market is small—about 8 percent of the population purchases individual coverage—it is important as a source of coverage for those without access to employer coverage. Its policy significance has also increased as policymakers have begun to contemplate:

  • The erosion of employer coverage.
  • Possible solutions to the problem of the uninsured.
  • The advantages of replacing or supplementing employer coverage with a system of individual tax credits.

Using data from the Current Population Survey, Dr. Chollet began by emphasizing that, on average, the typical purchaser of individual coverage resembles the population at large: employed adults living in metropolitan areas with moderate or high incomes. However, purchasers of individual coverage are more likely to have certain characteristics when compared with the employer-covered or uninsured populations:

  • They are more likely to be older than those with either employer coverage or the uninsured.
  • They tend to have lower incomes than those with employer coverage but higher incomes than the uninsured.
  • Although the typical individual purchaser works full-year and full-time, they are more likely than the population at large to be in less traditional working arrangements, such as a part-time or part-year work, retired, or self-employed.
  • They are also more likely than the population at large to live outside a metropolitan area.

Dr. Chollet began her overview of sellers in the individual market by noting that States' individual markets are typically concentrated (with the top five sellers holding at least 80 percent of the market), dominated by Blue Cross and Blue Shield plans, and have little health maintenance organization (HMO) participation or penetration. She also pointed out that there are typically many more sellers in the market relative to its size than in the group market: The group market is more than 10 times as large as the individual market but has only twice as many sellers. That is, the individual market has many sellers chasing relatively small amounts of business. Furthermore, the individual market is characterized by high turnover (a significant portion of participants appear to buy coverage for only part of the year), vulnerability to adverse selection and "death spirals," and a tendency toward segmentation rather than pooling of risk.

Dr. Chollet concluded with a list of questions that policymakers and regulators need to answer in order to make informed decisions about the market, such as:

  • Who is selling insurance?
  • How much of the market do they hold?
  • What is the profit or margin on their major medical business?

She also noted that large amounts of data are collected from insurers in their annual filings, but much of it is useless for answering those basic questions.


Chollet DJ, Kirk AM. Understanding Individual Health Insurance Markets: Structure, Practices, and Products in Ten States. The Henry J. Kaiser Family Foundation. 1999 Mar.

Chollet DJ. The Individual Insurance Market: Consumers, Insurers, and Market Behavior. Conference draft paper presented at The Evolution of the Individual Insurance Market: Now and in the Future, sponsored by The Robert Wood Johnson Foundation. 1999 Jan 20; Washington, DC.

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