Insurer filings to the National Association of Insurance Commissioners (NAIC) are a standardized source of information on health plan premiums and expenditures in the aggregate at the state level. The data - compiled by Mark Farrah Associates - shows how average premiums in the individual insurance market varied across the country for 2010.

Nationwide, the average monthly premium per person in the individual market in 2010 was $215, but the state-by-state range was substantial. Vermont and Massachusetts both had average per member per month premiums over $400 per month. The average premium revenues in Rhode Island, New York, and New Jersey were also relatively high, ranging from about $344 to $364 per month. Alabama ($136), California1 ($157), Arkansas ($163), Idaho ($167), and Delaware ($169) had the lowest average monthly premiums in the country. (Note that these figures represent average premium revenue per member per month. This represents an average across adults and children, so will be lower than a typical premium charged to a single adult.)

Why the Variation?

There are a variety of reasons why premiums might vary, including: the cost of living, health care costs, state demographics (e.g., the age distribution of the population), plans' effectiveness at controlling costs, the benefits offered by plans, and the patient cost-sharing required. Though premiums are lower in some states, the people enrolled in these plans may have to pay higher deductibles or copayments that offset the savings in premiums. Thus, the map above does not take into account the relative protection offered by the plans. Also, states that have instituted reforms in their insurance markets to make coverage more accessible - such as Massachusetts, Vermont, New York, and New Jersey - may have higher average premiums because people with pre-existing health conditions are able to enroll. Conversely, states that permit medical underwriting may have average premiums that are low because the risk pools include a healthier than average population.

Health Care Reform Will Narrow the Variation Among States

Starting in 2014, the health reform law (ACA) will require insurers to cover a standard essential benefit package in all states and to use defined tiers of cost-sharing. The minimum cost-sharing tier will require that all newly-purchased insurance in the non-group market have an actuarial value of at least 60%, meaning that the plan pays for at least 60% of the cost of covered benefits in the aggregate for a typical population. In addition, tax credits will be available to make coverage more affordable for people with incomes up to 400% of the poverty level ($43,560 for a single individual and $89,400 for a family of four in 2011 dollars). These changes should all help to narrow the variation in the insurance people buy in different areas of the country. But, a wide range of insurance policies will still be available (ranging from Bronze coverage at an actuarial value of 60% to Platinum coverage at an actuarial value of 90%), so patterns of purchase may still vary substantially across the country. The health reform law will also require all insurers in the individual (non-group) market to accept everyone regardless of health status and prohibit premium surcharges for people with pre-existing health conditions. These rules should narrow the variation in how much people pay for insurance in different parts of the country, but premiums will likely continue to vary considerably due to differences in the cost of living in general and health care, in particular.

Private and State Exchanges

Being competitive in the new health reform environment will require a new view of customers. Jeffrey Troutman, Executive Vice President of PNC Healthcare, a division of PNC Bank, N.A., sees a fundamental shift: “The industry is moving from wholesale to retail, and the need to make every interaction simple and user-friendly will drive much of the success for health insurers,” he said. The direct-to-consumer sales process changes the customer mix insurers are used to. Small employers will also be joining the exchange, making up nearly 4 million of the total exchange membership of 2014.

Affordability More Important than Ever

Of those currently uninsured, 76% say they can’t afford it. Affordability is expected to change for this population in 2014 when the government takes two steps: establishes a national floor for Medicaid eligibility and provides government premium subsidies for middle-income Americans. Previously, states set their own standards for Medicaid eligibility; some states were stingy so as to limit spending, and others were generous. But in 2014, Americans whose incomes fall below 138% of Federal Poverty Level (FPL) will qualify for Medicaid. Americans with incomes of 138% to 400% of FPL will be eligible for premium subsidies to buy private insurance in the exchanges. Incidentally, 400% FPL for a family of four is about $90,000.

Customized Products Needed

With this shift toward a retail focus, it will be more important than ever for insurers to know who their customers are so they can meet their needs and build lasting relationships. Their preferences vary based on their backgrounds, demographics, and genders. consumers who are younger and healthier are more open to purchasing health insurance from nontraditional sources, such as a retail store. This is also the group that is less likely to consider price as most important. Younger consumers, consumers with higher incomes, consumers in very good health are the most familiar with the individual mandate. Most consumers would be loyal to a health insurance company that offers incentives for healthy behaviors—except for the young and those in the poorest health. Younger consumers (aged 18 to 34 years) are three times as likely as consumers over 45 to be willing to give up their choice of doctor for a lower insurance costs.

More Than Half Of Individual Health Plans Offer Coverage That Falls Short Of What Can Be Sold Through Exchanges As Of 2014

A paper published in Health Affairs today, uses data supplied by health insurance companies to determine the financial protection they provided in 2010 in the individual and small- and large-group markets, and then compares that protection against the new 2014 standards.

The Affordable Care Act (ACA) creates state-based health insurance exchanges (HIX) that will begin acting as a marketplace for health insurance plans and consumers in 2014. More than half of Americans who had individual insurance in 2010 were enrolled in plans that would not qualify as providing essential coverage under ACA rules for the exchanges in 2014. These people were enrolled in plans with an actuarial value below 60 percent, which means that the plans covered less than that proportion of the enrollees’ health expenses.

Many of today’s individual health plans are below the “bronze” level, the lowest level of plan that can be sold through exchanges. In contrast, most group plans in 2010 had an actuarial benefit of 80-89 percent and would qualify as highly rated “gold” plans in the exchanges. To sell to ten million new buyers on the exchanges, insurers will need to redesign benefit packages. Combined with a ban on medical underwriting, the individual insurance market in a post-health reform world will sharply contrast with the market of past decades.

Key Findings

• The average actuarial value of group plans in 2010 was 83 percent, compared with an average of 60 percent for individual plans.
• Most people (65%) enrolled in group plans were in either the gold or platinum tier; about 28 percent were in the silver tier and 6 percent were in the bronze tier. Fewer than 1 percent were in plans with an actuarial value of less than 60 percent—dubbed “tin” plans by the authors.
• In the individual market, 51 percent of enrollment was in tin plans. Another third of enrollees were in bronze plans, 14 percent were in silver plans, and 2 percent were in gold plans. In the individual market, there were no platinum plans.
• Average out-of-pocket spending per household in the group plans was $1,765. In the individual plans, average household out-of-pocket spending was $4,127. The highest spenders in tin-tier individual insurance plans—including very sick people who incur huge medical bills—had more than $27,000 in annual out-of-pocket spending.