July 25, 2008
Emerging Individual Market Options

Non-group or individual health insurance is emerging as a diversified product line for insurers targeting people without access to group-sponsored or government-sponsored coverage. In the private health insurance segment, an estimated 17 million Americans have non-group health coverage that was purchased directly from insurance companies. This brief will present an analysis of the individual market with insights about major players and the important role insurers’ play in the self-employed, student and short-term medical markets.

Products Offered

Individuals directly purchase a diverse array of health insurance products from major medical to short term products. Major medical is by far the most popular type of individual health insurance purchased.

There are 229 companies offering major medical coverage to over 9 million individuals. This option is most appealing to the self-employed segment and offers comprehensive coverage usually at significant cost to the individual. HMO, PPO and traditional Indemnity options are all available. These plans are typically medically underwritten and may exclude people with pre-existing coverage.

WellPoint is the largest player in the Individual Major Medical market according to a compilation of information filed in NAIC statutory filings and with the CA Department of Managed Care. They insure approximately 21% of the market.

Limited benefit plans, also known as mini-medical or defined benefit plans, cover another 2 million people. Fifty-five companies offer coverage in states where limited benefit plans are permitted. Life, Accident and Health companies underwrite 88% of this business, With Universal American covering 70% of the existing market.

These products are not intended to take the place of major medical plans, but are an alternative when major medical is not an option. They are riskier for the individual than major medical, but certainly less precarious than no insurance at all. These products typically reimburse the insured by paying certain fees for services, i.e. $1,000 a day for hospital expenses or $50 for a doctor’s visit. They often include reimbursement for certain tests and typically have very little underwriting requirements and do not exclude preexisting conditions. Educating consumers, who are accustomed to major medical plans, is a major initiative for plans or agents offering this form of coverage. This typically low cost product is also being sold as a supplement to high deductible major medical coverage options. Many of these options are not insurance in the classic sense; they are more of a discount program. The patient is responsible for the full cost of any healthcare services purchased. They receive discounts for medical services at certain healthcare providers who have contracted with the program. In efforts to cut cost and still offer coverage, some employers are moving to this type of product as well.

Surprisingly, according to NAIC data, only a dozen companies offer individual coverage options for students. These products are also offered primarily by Life, Accident and Health companies with Guarantee Trust covering 85% of the students. Most students are covered either as dependents on their family’s plan or through university-sponsored options. Individual student coverage is usually purchased by the student or parents when the student has aged out of their family medical coverage. It is also obtained when the university-sponsored coverage is either not sufficient or not available to meet the student’s specific needs. With a slowing economy, students may opt to stay in school longer, increasing the number of older students. This may provide growth opportunities in this segment.

Thirty-seven companies offer short-term medical insurance to a much smaller market. Short-term plans provide coverage for a limited period of time, usually from one to six months. Some companies do offer coverage for up to 12 months but this is rare. Assurant Inc.’s, Time Insurance subsidiary is the major player in this space, insuring 37% of the covered lives. These plans are used by people between jobs or individuals who have a waiting period before their employer or other coverage begins. Short-term health insurance plans are not usually comprehensive in nature but do provide coverage for unforeseen accidents or illnesses and typically exclude coverage for preventive care. Pre-existing conditions are not usually covered by these plans. A further draw-back for short term plans is they are not considered coverage by the Health Insurance Portability and Accountability Act (HIPAA). Even though someone is insured through these products, HIPAA will consider them as having a break in coverage and therefore pre-existing conditions can be excluded by the future insurer as well.

Supplemental Products

The individual market is complex in that an individual can purchase an array of stand-alone and supplemental medical insurance products. Many of these products primarily pay a cash benefit to the individual, such as Accidental Death & Dismemberment (AD&D), hospital confinement or disability policies. Other options include coverage for specified diseases, medical coverage while traveling, or additional benefits, such as dental or vision, when group coverage excludes them. These products are not the emphasis of this brief but do provide evidence that individuals are willing and able to purchase health insurance products if they are made available.

Prior to employer groups and government entities sponsoring health coverage, individuals picked up the tab for their own insurance. With employer groups reducing benefits, growing unemployment and opportunities in the group and government markets shrinking, the individual market will continue to grow. Non-group or individual health insurance is already emerging as a diversified product line for many insurers. Supplemental products, similar to Medigap, are also beginning to appear to fill gaps in coverage left by high deductible plans or reduced employer plan designs.

Mark Farrah Associates provides information on the Individual Market through the Health Coverage Portal™. This easy to use online database contains plan specific financial and membership information. Data can be analyzed by plan or parent organization, state, region and national levels and is easily downloaded for use in Excel or other spreadsheet software for user specific analysis.

About this report

This brief is based on an analysis of data filed by Health; Life, Accident and Health; Property and Casualty; and Fraternal companies with the National Association of Insurance Commissioners (NAIC) and the CA Department of Managed Care as of December 2007. When available it primarily uses data from the Accident and Health Policy Exhibit of the NAIC Blank. The data elements and implications presented are not necessarily complete or all-revealing.

About Health Coverage Portal™

Market data for health insurance companies can be analyzed in many ways to provide strategic planning insights. The challenge is finding & aggregating the right data. The solution is the
Health Coverage Portal™, a data tool that integrates market measures for all types of health coverage. 50-state Health Coverage Portal™ - and Selective-state Health Coverage Portal™ subscription rates are available. Custom portal designs can also be created upon request.

About Mark Farrah Associates (MFA)

Mark Farrah Associates (MFA) is a data aggregator and publisher, focused primarily on the health insurance industry. MFA’s products include Medicare Business Online™, the Health Coverage Portal™, Health Insurer Insights™ and Health Plans USA™. We serve a wide range of companies with interests in healthcare business analysis.

For more information about our products and services, please contact MFA (207-985-8484) or visit us on the web.

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