Individual Health Insurance and States:  An Overview

Updated December 2011; material added March 2012

Individuals seeking private health insurance face a number of challenges, especially those whose employers do not offer any health insurance coverage.  Unlike most group insurance policies, acceptance for individual insurance is not guaranteed in most cases.  Applicants often are required to submit several years' worth of medical history before they are either approved or denied insurance.  Furthermore, after the issuance of insurance, consumers may face further difficulties.  For example, insurance companies have the flexibility in many jurisdictions to cancel health insurance retroactively, if they discover that the individual either knowingly or unknowingly omitted information about his or her health history in the application for insurance.  Retroactive cancellation requires the consumer to pay back to the insurance company any funds the company may have already covered for the consumer's health expenses. 

In 2008, it was estimated that there were 17-18 million people with individual coverage.  In light of increasing consumer and policymaker dissatisfaction with the indivdual market choices, states have begun to legislate in the area of individual health insurance to protect consumer rights.  Currently about 80% of individuals enrolled in non-group plans nationally are served by a Blue Cross Blue Shield licensee. 

Federal Health Reform and the Individual Market

The 17 million people who are covered in the individual health insurance market, where switching of plans and substantial changes in coverage are common, will see changes because of the Affordable Care Act sooner rather than later. Roughly 40 percent to two-thirds of people in individual market policies change plans within a year. In the short run, individuals whose plan changes and is no longer grandfathered will gain access to free preventive services, less restrictions pertaining to annual limits, and patient protections such as improved access to emergency rooms. These Americans also will have access to the Health Insurance Exchanges that will be established in 2014 to offer individuals and workers in small businesses a much greater  choice of plans at more affordable rates.

• "Essential Health Benefits: Individual Market Coverage"

  A report from HHS's Office of the Assistance Secretary for Planning and Evaluation, published December 16, 2011, The Affordable Care Act identified ten categories of services and items included in essential health benefits (EHBs). The ten categories include: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.

All ten categories of services and items must be covered by insurance offered in the individual and small group markets as of January 1, 2014.1 
According to data on currently marketed plans submitted by health insurance companies to HealthCare.gov, many individuals and families who purchase their own health insurance do not currently have coverage for several of the categories of benefits included in EHBs. 2
 

• 62 percent of enrollees do not have coverage for maternity services.
• 34 percent of enrollees do not have coverage for substance abuse services.
• 18 percent of enrollees do not have coverage for mental health services.
• 9 percent of enrollees do not have coverage for prescription drugs.

Americans who buy coverage in the individual market in 2014 will gain access to essential health benefits. Based on current estimates of the size of the individual market3 and the percent of enrollees in currently marketed plans without coverage for certain services, coverage of benefits in the individual market may expand as follows:4

• 8.7 million Americans will gain maternity coverage.
• 4.8 million Americans will gain substance abuse coverage at parity with medical and surgical benefits.
• 2.3 million Americans will gain mental health coverage at parity with medical and surgical benefits.
• 1.3 million Americans will gain prescription drug coverage.

State Protections for Treatment of Pre-Existing Conditions for Individual Markets

State law changes and regulation of the small group health insurance market have been heavily influenced by the passage of The Health Insurance Portability and Accountability Act of 1996 (HIPAA). This federal law was designed to increase the access, portability and renewability of private health insurance by setting minimum standards that apply to the individual, small group (including fully insured and self-insured) and large group markets of all states.All 50 states now have some type of state statutory protection and/or definitions related to coverage (or exclusion) of pre-existing conditions.  A much shorter list of states have no waiting period or "look-back" period.  In the absence of a waiting period or "look-back" period stipulation, insurance companies can not deny individual health insurance on the basis of pre-existing conditions.   

Individual Market Reforms

Since the individual market was previously not highly regulated, the federal standards affected insurers selling individual policy in several states, particularly those with laws dated after 1996.  Individual reforms have three significant differences from the reforms targeting small groups:  1) pre-existing condition exclusion clauses are not allowed; in particular, issuers may not impose pre-existing condition exclusions upon individuals eligible for group-to-individual guaranteed access.  2) a state may opt out of the guaranteed issue provision with "acceptable" alternative mechanisms;  and 3) eligibility requirements exist (guaranteed renewal applies to all of those in the individual market, not only HIPAA eligibles).

Health Insurance Exchanges

Since 2007, at least three states have launched health Insurance Exchanges, or "Connectors" aimed at aiding those who rely on the individual market. Individuals will have increased ability to use Health Insurance Exchanges with the implementation of federal health reform. See details on Massachusett, Utah and Florida in NCSL's report:  Health Insurance Exchanges: Overview and State Actions - PDF File (November 2009)

Table Definitions:
The following definitions and abbreviations apply to the table below:

Guaranteed Issue:  Requires insurance carriers to offer coverage regardless of claims history or health status. 

Preexisting Conditions:  Limits the amount of time a carrier can exclude coverage for a condition that was present before the new coverage began.  Also usually limits the amount of time a carrier can "look back" to consider a condition as preexisting.  The tables list two numbers indicating first, the maximum exclusion time in months, and second, the look-back time in months (i.e., 12/6). Look-back provisions often use one of two specific standards and definitions:

• "Prudent Person" definition, meaning that the average layperson would have sought treatment or advice for the given condition.  This means that actually consulting a health care provider is not always necessary for a condition to be considered preexisting.
• "Objective Standard" definition, which includes those conditions for which someone actually received medical advice, diagnosis, care or treatment prior to enrollment to be counted as pre-existing. A portability provision commonly is included so that a waiting period served under a previous policy is credited toward the new policy. 

Guaranteed Renewal:  Requires carriers to renew policies with small groups or individuals regardless of claims experience. Insurers may discontinue coverage only if the individual or business is at fault (e.g., failure to pay premiums, fraud). Note that the federal HIPAA legislation requires guaranteed renewal.  Each state enforces HIPAA requirements with the Centers for Medicare and Medicaid services (CMS) playing an enforcement role under certain conditions.  If a state notifies CMS that it has not enacted legislation to enforce or that it is not enforcing HIPAA requirments, then CMS becomes responsible for that function.The table below includes laws on the specific topics current to December 2008.  

Source: Kaiser Family Foundation, State Health Facts, "Individual Market Portability Rules (Not Applicable to HIPAA Eligible Individuals), 2010"

Footnotes for Guaranteed Issue: Note: Details and updated data provided by "Health Policy Institute, Georgetown University" as published by Kaiser State Health Facts- December 2007.

1. California: Insurers for the individual markets and HMOs must guarantee issue a standardized policy to those exhausting High Risk Pool coverage (36 months).
2. Idaho: Individual market insurers must guarantee issue standardized policies to the medically uninsurable. Insurers must offer basic, standard and catastrophic policies. These policies are called High Risk Pool Policies.
3. Iowa: Iowa provides a high risk pool for those who cannot afford coverage in the private markets. The Iowa Individual Health Benefit Reinsurance Association (IHBRA) has been merged into HIPIOWA effective January, 2005.
4. Kentucky: Beginning in 1998 with HB 315, the standardized plans and guaranteed issue requirements were replaced by a complex "pay or play" system that was named the Guaranteed Acceptance Program. In 2000, HB 517 created a high risk pool called the Kentucky Access. These measures were specifically taken to encourage more people to return to the individual markets.
5. Michigan: HMOs, after 24 months in existence, are required to guarantee issue to a limited number of applicants during one, 30 day open enrollment per year.
6. New Hampshire: There were many flaws with the 1994 law on guarantee issue. The greatest conflict being that the law did not require individual policies issued before the law to comply with the new laws. Therefore, the impact of the reforms were dampened. Due to declining enrollments, the guaranteed issue was repealed in 2002. Instead, a high risk pool was created.
7. Ohio: Individual market insurers must guarantee issue standardized policies on a periodic basis. Non-HMOs are required to guarantee issue standardized policies (up to a limited number determined of enrollees as determined by the state) for one 30 day period, annually. HMOs are required to guarantee issue standardized policies annually until reaching a state determined limited number. For HMOs, this period could extend beyond 30 days.
8. Oregon: Individual market insurers must guaranteed issue portability policies to individuals with 6 months of prior coverage.
9. Rhode Island: Individual market insurers must guarantee issue all products to those with 12 months of continuous creditable coverage, provided the applicant is not eligible for alternative group coverage, Medicare or any other state health insurance plan.
10. South Dakota: The South Dakota Risk Pool was created in 2003 to provide coverage to people who have lost coverage and have previous creditable coverage. However, unlike most high-risk pools, the program does not serve uninsured individuals who have a pre-existing condition or illness that causes them to be declined by private insurers unless the person recently lost creditable coverage.
11. Utah: Individual market insurers that have not met enrollment cap must guarantee issue at least one individual market policy to those that are otherwise not eligible for any other type of health insurance coverage (i.e group, HRP, etc.).
12. Washington: The insurers must guarantee issue all products to their applicants,  who receive a minimum score on the state mandated health status questionnaire. The applicants that are not eligible for guarantee issue are referred to the high risk pool.
13. West Virginia: HMOs with greater than 5 years in the market or with enrollment not less than 50,000 must guarantee issue during the annual 30 day open enrollment period.

Footnotes for Pre-Existing Conditions:* Cannot be applied to guaranteed issue products.**Commercial insurers: 6/12, BCBSMI and HMOs: 6/6

1. Connecticut:

• HR 2833: The legislation would allow insurers to look back only a period of 30 days on medical records of applicants. Furthermore, the legislation extends the HIPAA protections to individuals who are insured through employer-based private plans and non-group, individual plans.
• Charter Oak Plan: The plan would require managed care companies to provide health coverage to residents who have been uninsured for at least six months and are ineligible for publicly funded health plan and charge only the premium.     

2. Iowa: The HF2539 legislation would prevent private insurance companies from using preexisting health conditions against its applicants.