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Health insurers have a good shot at turning a profit on one-person and family policies even in states that require insurers to accept all applicants.

Researchers at Harvard University have published data supporting that conclusion in a report that gives a detailed look at individual health insurance markets in 7 states.

The researchers, Nancy Turnbull and Nancy Kane, included 3 statesMassachusetts, New Jersey and New Yorkthat require individual health insurers to sell coverage on a “guaranteed issue” basis and offer the same rates to sicker applicants that they offer to healthier applicants.

The researchers also included 4 statesIowa, Kansas, Kentucky and Washingtonthat let the free market set individual rates and rely on government-run “high-risk pools” to insure residents rejected by the commercial insurers because of health problems.

Although claims costs might be higher in the guaranteed-issue states, rates are also higher. Thanks to the high rates in the 3 guaranteed-issue states, individual market medical loss ratios there range from about 75% to 85% of premium revenue, just as they do in the 4 free-market states, the researchers write in their study report.

The researchers did not have direct access to individual market profitability data, but they argue that the product loss ratios suggest the individual products are profitable.

“The withdrawal of carriers suggests that reform has made the individual market less attractive for some insurers in some states,” the researchers write. “Yet the individual market has been profitable for the largest carriers in each of the study states.”

The researchers also looked at rates for 3 hypothetical customers: A 25-year-old male, a 35-year-old couple with 2 children, and a 63-year-old couple without children.

The researchers came up with an income-absorption ratio by comparing the annual cost of coverage with a $500 deductible and a 20% coinsurance rate to a benchmark income equal to 200% of the federal poverty income level.

As the researchers expected, the 25-year-old male was much better off paying market rates. For him, commercial coverage would absorb 5% of the benchmark income in Kentucky and 33% in New Jersey.

But, for the 63-year-old couple, commercial coverage would be unavailable in Kentucky, and the cost for a healthy 63-year-old couple would absorb 35% to 58% of the benchmark income in the other 3 free-market states.

The cost of commercial coverage for 63-year-olds with health problems that forced them into the high-risk pool would range from 96% to 129% of the benchmark income.

In the 3 guaranteed-issue states, health coverage costs for either healthy or sick 63-year-olds would amount to 43% to 64% of the benchmark income.


Reproduced from National Underwriter Edition, February 18, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.