This post is part of a blog series on the history of the U.S. health insurance industry. This series has been adapted from the Zane Benefits white paper, The Inevitable End of Small Business Health Insurance. To access Part 3 of this blog series, please click here.
In Part 3 of this series, we discussed previous attempts to stabilize the employer-provided health insurance market. Many states passed the National Association of Insurance Commissioners’ (NAIC) “Small Employer Health Insurance Availability” Model Act to address the growing market instability. The NAIC law stated that insurance companies operating in a state had to “Guarantee Issue” certain plans to small employers.
While the law and innovations from the private sector made employer-provided health insurance more accessible to small businesses, it did not address cost increases and businesses could still be turned down for not meeting participation requirements. As a result, the Individual Market began to grow and several new companies, like Zane Benefits, entered the Individual Market to offer innovative health solutions.
The Case for Individual Health Insurance Reform
As demand increased for individual health insurance, limitations in the Individual Health Insurance Market were exposed. These limitations included medical underwriting, application denials, and a lack of standardized plans. At the same time, the small business health insurance market was in crisis as employer healthcare costs doubled in the 2000s.
Together, the individual and small employer market challenges led to the creation and ultimate passage of the Affordable Care Act (ACA) on March 23, 2010. Many of the law’s major provisions overhauled the Individual Health Insurance Market.
Objectives for Individual Health Insurance Reform
The Affordable Care Act (ACA) has three primary objectives which directly affect individual health insurance:
To standardize plans and provide consumer protections;
To provide universal access to health insurance; and
To make health insurance more affordable.
1. To standardize plans and provide consumer protections
In order to standardize plans available in the Individual Market and provide better consumer protections, the ACA requires:
Standard Plan Tiers – Individual health insurance policies are organized by "metal" tiers -- bronze, silver, gold, and platinum -- with the goal of easier and more informed comparison shopping. Each tier requires a certain level of cost-sharing be met.
Unlimited Essential Health Benefits – Individual health insurance policies must provide a comprehensive package of items and services, known as “Essential Health Benefits”. Essential Health Benefits must be covered on an unlimited (annual and lifetime) basis. Individual health insurance policies must also provide unlimited preventive care with the idea that a disease or illness that is prevented or caught early costs less.
2. To provide universal access to health insurance
In order to ensure access to individual health insurance, the ACA requires:
Guaranteed Issue – All individual insurance insurers must “Guarantee Issue” policies to all applicants, regardless of health status or other factors.
State Health Insurance Marketplaces – States must make available a public Health Insurance Marketplace to provide an unbiased location for consumers to comparison shop for individual insurance policies.
3. To make health insurance more affordable
In order to make health insurance more affordable, the ACA includes:
Premium Tax Credits – Americans with household incomes below 400 percent of the federal poverty line (FPL) qualify for premium tax credits which cap the cost of a qualifying household’s individual health insurance policy as a percentage of the household’s income.
Medicaid Expansion – States have the option of expanding Medicaid eligibility to citizens with household incomes up to 138 percent of FPL.
Individual Mandate – The individual mandate, which requires all Americans to purchase health insurance or pay a tax penalty, is designed to diversify the risk pool with healthy participants in order to lower costs.
Individual Market to Expand to 150 Million Insureds by 2025
While plan standardization and guaranteed access have readied the Individual Market for mass adoption, it is the ACA’s effort to make health insurance more affordable that is driving the shift to individual health plans. As a result, the Individual Market is expected to expand to more than 150 million insureds by 2025.