What Is the “Individual Market” and Why Is It Important?
California’s individual health insurance market is a crucial backstop for people who cannot access affordable health insurance the way most Californians gain coverage — through jobs, Medi-Cal, and Medicare. Californians who don’t have access to these common types of health insurance can buy coverage for themselves and their family members through the individual market. Coverage may be purchased by individuals either through Covered California, the state’s ACA-established health insurance exchange (or “marketplace”), or directly from an insurer “off-exchange.” Under federal law, to purchase through Covered California, Californians must meet immigration and other documentation status requirements. Together, the plans offered through Covered California and those available directly to individual purchasers off-exchange make up the “individual market.”
Prevalent Sources of Health Insurance
Most insured Californians get their health coverage through:
If not covered through these means, people turn to the individual market.
People in the individual market typically include:
- People who are self-employed
- Early retirees who don’t yet qualify for Medicare
- Contract, part-time, or full-time workers who aren’t offered health benefits through their jobs
- Workers whose employer-sponsored insurance (ESI) is very expensive
Often, it includes people who are going through some kind of major life transition. Californians who rely on the individual market may have recently:
- Gotten a pay raise or changed jobs and now earn too much to stay on Medi-Cal
- Lost a job and, with it, their ESI
- Lost a spouse whose job provided family coverage
- Aged off their parents’ ESI plans
Many consumers who rely on the individual market have modest or unpredictable earnings.
About 2.2 million Californians currently get coverage through the individual market (about 1.3 million buy through Covered California, and the rest purchase coverage off-exchange). That compares to the roughly 18 million who get ESI and 13 million who get Medi-Cal. (For more about Covered California and the individual market, see Health Policy Essentials: Covered California and Individual Health Insurance [PDF] from the Insure the Uninsured Project.)
To summarize, the individual market covers a relatively small number of people, compared to other sources of insurance, but it plays a critical role by serving people without any other coverage options. Without affordable individual coverage, these consumers would become uninsured.
The individual market covers a relatively small number of people compared to other sources of insurance, but it plays a critical role by serving people without any other coverage options. Without affordable individual coverage, these consumers would become uninsured.
How Affordable Is Coverage? It Depends on Both Premiums and Out-of-Pocket Costs.
The affordability of health coverage is often judged based on the monthly premium cost, which you pay if you use care or not. But OOP costs, which apply only when you get care, can also be a significant financial burden for consumers. Plans with higher premiums typically impose lower OOP costs and vice versa.
Assuming you can afford it, if you have numerous or expensive health care needs, you might choose a plan with a higher monthly premium to reduce the risk of having high out-of-pocket costs. If, however, you think you will not have that many health care needs in the coming year, you might choose a plan with a lower monthly premium, anticipating that your risk of big medical bills will be small.
But health care needs are not all foreseeable. Accidents happen, and illnesses can come about suddenly. And people’s choices are limited by what they can afford.
How Is the Individual Market Different from ESI?
Although some people with ESI struggle with the high cost of health care, affordability challenges tend to be worse for those on the individual market. A fundamental reason is that those with ESI have an employer who pays part (often a big part) of their health insurance premium.
Before the ACA, Californians with individual coverage had to shoulder the full premium and were very sensitive to premium differences. They often chose products that imposed higher OOP costs to keep premiums more manageable.
The ACA was designed, in part, to address the financial vulnerability of consumers whose only path to coverage is through the individual market (see the The ACA & Affordability section for more detail). Even though the ACA provides federal financial help to make coverage more affordable for many who rely on individual coverage, those in the individual market still generally do not enjoy as much financial protection as those with ESI.