The policy trade-off is between group health insurance provided through the employment setting and nongroup health insurance marketed and purchased in the same way as other consumer insurances, such as homeowner or auto insurance. Perhaps that ranking is correct, but our results suggest that the appearances that gave rise to it may be quite deceiving. If we look at the individuals who actually buy nongroup insurance and what they actually pay, that type of insurance appears to be much less effective in segmenting risks than one would assume simply by reviewing what insurers say they try to do. Considerable valid research, some quite recent, describes nongroup insurers who seek to charge low premiums to low risks and high premiums to high risks, and who consequently avoid selling to high risks and seek out low risks as prime customers. But that research is misleading, because it looks only at one side of the market what sellers would like to have happen.
Buyers appear to have some success in their quest for a decent deal.
Most important, they frequently chose policies with guaranteed renewability built in, even when not required by law. Our results show that there is much more risk pooling in nongroup insurance markets than is suggested by effective risk rating. Across a random sample of citizens, there is still substantial variation in the premiums paid for nongroup insurance for a given level of coverage but that variation is by no means proportional to risk. Moreover, premiums do not vary with the presence of high-risk chronic conditions. The correct conclusion to be drawn is that the nongroup market is high in cost, although it may not be very unfair.