Information on Utah's Comprehensive Health Insurance Market

Utah's Comprehensive Health Insurance Market

Comprehensive health insurance makes up approximately 63 percent of the commercial health insurance market in the state of Utah and affects approximately 32 percent of Utah residents. It is the only type of major medical health benefit plan directly regulated by the Insurance Department. The following analysis of the comprehensive market examines various aspects of the market including state of domicile, group size, health benefit plan type, and market trends.

Comprehensive Market by Domicile

State of domicile refers to the state in which an insurer's home office is located. An insurer can only be domiciled in one state. Domestic insurers generally have a larger presence in their state of domicile than foreign insurers. Their local status may assist them in negotiating more favorable provider contracts and creating larger provider networks than foreign insurers.

Approximately 88 percent of the comprehensive health insurance market is served by domestic insurers and is highly concentrated among 12 insurers. Sixty-two foreign insurers represent the remaining market share. Premiums for domestic and foreign insurers were nearly identical with $204 per member per month for domestics and $203 per member per month for foreign. Loss ratios were lower for foreign insurers.

Comprehensive Market by Group Size

Comprehensive health insurance plans are sold either as an individual, a group, or a conversion policy. Individual policies are sold directly to individual consumers. In contrast, group policies are sold as a single contract to a group of individuals, such as a group of employees. Groups with 2 to 50 employees are classified as small employer groups. Groups with 51 or more employees are classified as large employer groups. Conversion policies are sold to individuals whose eligibility for a group policy ended and who "converted" their group policy membership to an individual policy. Conversion policies are typically classified as individual policies.

Group policies reported higher premium per member per month ($219) than individual policies ($133). This is probably due to differences in underwriting practices. In individually underwritten policies, insurers have more ability to set rates based on health criteria. As a result, sicker individuals who would incur higher medical costs would be given policy offers with higher premiums than healthier individuals. However, less expensive policies are more likely to be issued than expensive ones. So the individual market's lower premium may reflect the tendency for healthier individuals to get and accept more affordable health insurance coverage.

In the case of small employer groups, policies are underwritten based on the health status of the group rather than the individual, with each group containing both healthy and sick individuals. However, because the group is small (between 2 to 50 members) the health status of an individual person can have a significant impact on rating. Rates are based on the initial health status of the group, but can change at the annual renewal if the health status of the group declines. Small groups can experience rate increases of up to 15 percent at renewal due to changes in health status. Additional increases are also imposed due to changes in the group's demographics and increasing costs of health care.

In contrast, large group policies are typically underwritten without taking individual health status into account. Each group is a mix of healthy and sick individuals, and the larger the group, the less impact the health status of an individual person can have on costs. However, because less underwriting is used, sicker individuals may freely enter the group, which can increase the overall cost of the group. Thus, medical claims costs tend to be higher and policyholders are charged higher premiums to pay for these additional costs. However, large group premiums tend to be less expensive for sick individuals compared to what they would pay if they were underwritten in the individual or small group markets.

Conversion policies had the highest premium per member per month ($333). This is due to the fact that conversion policies are often issued to individuals who are ill, who have more expensive medical needs, and who have a critical need to continue coverage even though their group policy is no longer available. Less than one percent of the market was insured by conversion policies.

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