Reform Can't Come Soon Enough for People Who Buy Individual Health Insurance Policies

Last Updated Jun 21, 2010 8:52 PM EDT

A June 21 Kaiser Family Foundation survey of people who buy health insurance in the non-group or individual market shows just how far the insurance industry is from adopting a health-reform mindset. Premiums on individual policies shot up an average of 20% this year, prompting 16% of policyholders to switch plans. Anyone with a pre-existing condition was in trouble, though: 49% of such patients couldn't find an acceptable plan, vs. 27 percent of healthy people.

At any other time in history, these numbers wouldn't be so surprising. But consider how much has to change when the new health reform law begins to take effect: Not only will insurers have to report premium increases, they will also have to justify excessive rate hikes. Starting in January 2014, they'll no longer be able to deny or rescind policies -- or adjust premiums -- based on pre-existing conditions. And their ability to tweak premiums based on factors such as tobacco use and age will be limited.

That post-reform world seems like it will be Shangri-La compared to what the 1,038 people surveyed by the Kaiser Family Foundation are facing now. Respondents with individual coverage pay an average annual premium of $3,606, while those with family coverage pay $7,102. Both groups report paying an additional $1,690 in out-of-pocket expenses such as co-pays. More than a quarter have a high deductible of $5,000 or more, while only 7% report having no deductible.

You'd think all that spending would at least provide some peace of mind, but clearly it isn't. When asked how confident they were that they'd have enough money to pay for a major illness or serious injury, only 14% of people with individual coverage said "very confident"--as opposed to 34% of people who are insured by their employers. Eighty-one percent of individual buyers with pre-existing conditions said the were worried their insurance company would raise their premiums so much they wouldn't be able to afford insurance.

Among individuals with pre-existing conditions, "there's just a sense of worry they're not as well protected as they need to be," said Gary Claxton, vice president and director of the Kaiser Family Foundation's Marketplace Project in a call with reporters. Claxton added that the legislation will allow for cost-sharing subsidies and limits on out-of-pocket expenses for people who get sick--all of which should provide some peace of mind.

About 14 million Americans buy individual policies, and post health reform, they'll be shopping on the new health-insurance exchanges created by the law. Although it's not quite evident how the products offered on those exchanges will shape up, it is quite clear that insurers will be forced to change how they do business. Four in ten of all individual policy holders polled by Kaiser said they had at least one problem getting their carrier to pay a bill. Under health reform, insurers will have to streamline their processes so they can pay claims in a timely manner, and they'll have to improve their customer service--all while cutting costs.

All of that seems an eternity away from reality, though. Drew Altman, CEO of the Kaiser Family Foundation, said during the call that no one can predict what will happen to premiums over the next few years as insurers prepare for mandated changes under health reform. He did say that he expects warfare between state regulators and insurers to intensify. That could cause some insurers to pull out of certain markets. But people who buy individual policies are more concerned with the here and now, Altman points out. "From the point of view of the consumer," he said during the call, "getting hit with a 20% premium increase is unreasonable when wages and inflation are flat."