On and Off-Exchange Insurance

As the implementation dates for the individual mandate of purchasing health insurance, and the associated opening of the public health insurance exchanges, approach we are seeing more studies about premium rates.  Although much of the focus has been on exchange rates, there will continue to be a separate health insurance market outside the exchanges.  A number of health plans have indicated that they won’t sell on the exchanges but will continue to sell individual insurance in various markets.  The primary reason for not selling on the exchanges is uncertainty about what the risk pool will look like, especially in early years when the penalty for not having health insurance is so small.  Insurers fear a very unhealthy, high cost pool of members.  This fear may be one reason for higher premiums on exchanges.  An analysis from HealthPocket suggests that particularly for individuals who are not eligible for subsidies (subsidies can only be received for exchange-purchased insurance) coverage purchased outside the exchanges may be cheaper.   (HealthPocket Analysis)   The firm’s analysis found that in many states rates from the large national plans that often are not participating on the exchanges were lower than rates offered by plans on the exchange, with a range of 8% to 52% decrease, depending on the state.  It should be noted that this analysis does not appear to involve an analysis of benefit equivalency, but it does suggest that individuals with incomes above the subsidy level should at least consider this option.  Since many consumers are not well-informed about the exchanges, they probably don’t understand all their options and the administration has no incentive to ensure they consider non-exchange coverage.  Since lower-income consumers tend to have higher health costs, a segregating of those individuals to the public exchanges and higher-income people to the non-exchange market could have a dangerous feedback effect of making the exchange risk pool worse and worse, with higher rates and insurers less willing to participate.  Oh, isn’t reform beautiful.