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The Nongroup Health Insurance Market: Short on Facts, Long on Opinions and Policy Disputes

Oct. 23, 2002
Health Affairs,Web Exclusive
Mark V. Pauly, Len M. Nichols


ndividual Health insurance is more administratively costly and more prone to adverse selection (especially in the presence of community rating) than group health coverage is. This paper shows that the individual market has been shrinking over time but that it might be stimulated if tax credits for such insurance were made available. The primary areas of factual disagreement have to do with the frequency with which individual insurers charge some applicants higher premiums than others (based on health risk), and the effect that premiums related to risk have on the likelihood of insurance purchase at different income levels. The primary area of policy disagreement concerns the value of making voluntary insurance attractive to lower risks. We argue that a major market failure for individual coverage may be caused by insurers’ inability to distinguish some truly low risks. We conclude that the individual market works acceptably well for about 80 percent of potential buyers, but its performance for the remaining 20 percent of low-income or high-risk persons is controversial.

Free access to this article is available at the Health Affairs Web site.


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