Topics: Obamacare

Insurance market turnover historically due to people gaining new coverage, not getting cancelled

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Beltway Confidential,Philip Klein,Barack Obama,Obamacare,Health Care

In a Thursday press conference, under fire for the millions of insurance policy cancellations that have swept through the country as a result of his health care law, President Obama attempted to argue that before his health care law was put in place, there was already a lot of "churn" in the individual market for health insurance.

"[T]hat's something I deeply regret, because it’s scary getting a cancellation notice," he said of people losing their coverage.

He then added, "Now, it is important to understand that out of that population, typically there is constant churn in that market. This market is not very stable and reliable for people."

Obama is right to the extent that before his law passed, there was a high degree of turnover in the individual market. However, the reason wasn't mainly that insurance companies were constantly terminating policies on a mass scale. It was that people typically bought insurance on the individual market when they were between jobs and then went off of it once they got employer coverage again.

This reality was demonstrated by two studies that appeared in the Nov. 2004 edition of the journal Health Affairs.

The authors of one study, which looked at Census data from the late 1990s, concluded, "Most individual-coverage spells begin when people enter from and exit to employer coverage. This implies that a primary function of individual insurance is to bridge gaps in employer coverage."

A table accompanying the study shows that nearly 70 percent of those who exited the individual market gained employer-based coverage and just over 15 percent gained public coverage -- for a total of about 85 percent.

Another study, which looked at the individual market in California, found that "turnover in the individual insurance market occurs primarily among those who have lost or gained employer coverage."

Specifically, "About 56 percent of those joining the individual market had employer coverage in the previous month, and 69 percent leaving the individual market obtained employer coverage."

So, saying that there was a lot of turnover in the individual market prior to Obamacare is accurate. But comparing the situation to the one facing millions of Americans now receiving cancellation letters from their insurance carriers is misleading.

People who choose to give up their individual coverage because they took new jobs are in a much different boat than those who are losing coverage because the government made their plans illegal.

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