Individual Versus Job-Based Health Insurance: Weighing The Pros And Cons

PROLOGUE: In a system dominated by private group health insurance, individual coverage has never been a very attractive option for most people. Indeed, for several reasons, less than 7 percent of the population obtains nongroup health insurance. It's unaffordable for many people—in part because of very high administrative costs—and it may be difficult to obtain for some persons who have preexisting medical conditions. But as policymakers search for other private-sector alternatives to job-based group coverage, options once considered less attractive—particularly when government-sponsored or -administered solutions to broadened coverage held greater political appeal—are emerging as possible approaches. In this paper Mark Pauly and his colleagues at the University of Pennsylvania's Wharton School discuss how individual insurance could be improved and thus made more attractive to more prospective buyers. Pauly, a leading health economist who believes in market-based solutions to problems of insurance coverage, is the Bendheim Professor and chair of the Department of Health Care Systems. His classic study on the economics of moral hazard was the first to point out how insurance coverage may affect patients' use of medical care. Allison Percy, a doctoral student at Wharton, is writing a dissertation on the impact of small-group and individual insurance market reforms on health coverage patterns. Bradley Herring is also a doctoral candidate, examining the extent to which access to care for the uninsured makes purchasing health insurance less likely. ABSTRACT: Although the majority of insured Americans receive their health insurance through their employers, some depend on the individual health insurance market. However, with increased criticism of the lack of choice in group coverage and various proposals including subsidies or tax credits to decrease the number of uninsured, the individual market may start to play a larger role. In this paper we conclude that although efficient large-group insurance will appropriately continue to exist, the individual market appears to be improving, in both administrative cost and protection against high premiums associated with high risk. For diverse workers now in small groups with little plan choice, the individual market might become a reasonable alternative.