Going it alone on health insurance

The bad economy has been good for at least one niche business -- individual health insurance. Laid-off Minnesotans are signing up in big numbers for individual health plans to replace the coverage they've lost along with their jobs. Others, still employed, find that their companies have dropped medical coverage or that they can no longer afford their portion of group premiums.

"2008 was a huge year for us," said Craig Ashby, director of individual products at Medica, the state's third biggest seller of individual health insurance. Medica's individual enrollment has jumped almost 70 percent, from 8,660 members at the end of 2007 to 14,689 at the end of 2008.

HealthPartners, which was selling 200 to 300 new individual policies a month before the middle of last year, is now selling more than 1,000 a month. Because of high turnover, however, its total individual enrollment of 22,000 isn't much higher than it was at the beginning of 2007.

Blue Cross and Blue Shield of Minnesota, by far the biggest seller of individual policies, said 2008 sales were "steady and consistent" but declined to provide numbers.

"Many unemployed people are considering individual insurance for the first time in their lives," Shawn Patterson, vice president of marketing for Blue Cross, said in an e-mail.

A growing niche

Individual policies remain just a sliver of the health insurance market, but they are growing fast. The majority of Minnesotans -- about 60 percent -- still get coverage through their employers. In 2002, there were 192,942 enrollees, or 3.8 percent of Minnesotans, in the individual market. By 2007, the number had climbed to 246,190, or 4.7 percent of the population. 2008 numbers haven't been compiled yet.

"We believe the individual product is going to have a bigger place in the solution," said Doug Smith, HealthPartners' senior vice president for sales. "I don't know how much is related to economic conditions or how much is a sea change."

During the presidential campaign, Republican John McCain championed tax credits for individuals and families to help them buy individual insurance. He lost, but individual policies could still play a role in Washington's effort to expand coverage.

Last week, America's Health Insurance Plans, the industry trade group, said it would consider stopping the controversial practice of charging higher premiums to sick people if Congress required all Americans to have insurance. The concession was to counter Democratic proposals for a new government-run health insurance plan that would compete with private insurers.

For now, however, it's the weak economy that's driving people to individual coverage.

"Recently unemployed?" asks the website of Blue Cross and Blue Shield. "You have more options than Cobra," referring to the federal law that gives laid-off workers the right to stay on the company's group insurance for a limited period.

In January, after Hutchinson Technology laid off 1,380 workers, many of them in Minnesota, Medica quickly partnered with a local Hutchinson insurance agent to host informational seminars and paper the city with fliers.

The seminars on Tuesdays and Thursdays at the Hutchinson Event Center haven't drawn the hoped-for crowds. "We expected to fill rooms of 100 people," said Alan Nagel, the local insurance agent. Instead, 15 to 20 people have shown up each time.

Nevertheless, Nagel said, he's selling a lot more individual policies these days through referrals.

Lower premiums

Health plans are well aware of the squeeze on consumers.

The biggest selling point for consumers is that these products carry premiums that are significantly lower than group premiums.

For example, Medica's average monthly premium is $375 for a single person in a group plan. Because employers often subsidize up to 90 percent of the premium, many people get sticker shock when they apply for Cobra after a layoff and have to pay the full premium.

By contrast, the average monthly premium for individual coverage at Medica is $150. It comes with an average annual deductible of between $2,000 and $3,000.

The trade-off is that benefits are stripped down. Maternity, for example, is not covered in some individual plans, and the policies usually come with a hefty annual deductible, up to $9,000 in Medica's case.

For the plans, individual policies have higher marketing and underwriting costs than group coverage, but they still contribute to the bottom line -- and are preferable to losing customers entirely. Also, while group plans have to take all comers, insurers can and do deny individual coverage to those with expensive health conditions.

For those with chronic conditions, insurance experts say it's probably better to hang onto Cobra as long as they can. President Obama's recent economic stimulus package includes a plan to subsidize Cobra premiums by 65 percent for nine months as a temporary relief for those laid-off.

"Certainly it should encourage people to keep Cobra," said Marcus Merz, chief executive of PreferredOne, the state's fourth-largest health insurer. PreferredOne began selling individual policies three years ago, but it "really took off in 2008," Merz said. The insurer now has 5,000 individual enrollees.

Still, other forces are likely to continue to boost the individual market.

Late last year, Merz said, some small companies began dropping employee coverage altogether. Three companies that were clients of PreferredOne did that in December 2008 and another two are dropping coverage in April.

"That's going to accelerate in 2009," he predicted.