Trends in the Golden State: Small Group Premiums Rise Sharply while Actuarial Values for Individual Coverage Plummet

Jon Gabel, Jeremy Pickreign, Roland McDevitt, Heidi Whitmore, Laura Gandolfo, Ryan Lore, and Katy Wilson

This Health Affairs article by Gabel et al. shows that individual coverage in California is growing less affordable faster than small group coverage.

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June 2007

This study adds to the evidence that small group and individual health coverage in California is becoming less affordable due to rising premiums and increasing cost sharing. Published as a Health Affairs Web Exclusive, the study reveals that affordability problems are showing up in very different ways in both markets.

Premiums paid by employees for small group coverage in the Golden State increased 53% between 2003 and 2006, from $250 to $382. Premiums for individual coverage rose 23% between 2002 and 2006, from $211 to $259.

However, the average actuarial value of individual coverage declined dramatically: In 2003 individual market policies paid 75% of medical costs on average; that figure had dropped to 55% just three years later. In contrast, small group market policies retained their actuarial value, paying for roughly 83% of medical expenses across a similar period.

Led by analysts from the benefits consulting firm of Watson Wyatt Worldwide, the research team calculated payouts by each plan and patients' expected out-of-pocket expenses for a standardized large population with group insurance that was kept constant across plans. Hence, the analysis of the individual insurance market assumes that insurers treat a population identical to that treated in the group market. To reflect California insurance law, the small group market was defined as including firms with 2 to 50 workers.

The work was supported by the CHCF. It builds on earlier CHCF-funded work published in Health Affairs by Melinda Buntin et al., titled "Trends and Variability in Individual Insurance Products in California," which documented trends from 1997 to 2002 in the California individual insurance market.

By examining both out-of-pocket expenses facing policyholders, as well as premium costs, the study shows that individual coverage in California is growing less affordable faster than small group coverage.

The Web Exclusive is available free of charge on the Health Affairs website through the External Link below.