“Selling individual policies makes them subject to the HIPAA law which requires them to sell an individual policy without underwriting to those folks who lose their group coverage. Essentially, they’ll just be dumping another group of high-utilization subscribers into the state pool.”
I read the article to find out why they left the market, and, annoyingly, the article didn’t say. It appears that you have given the reason, but I don’t understand the reason. I’d be grateful if you could elaborate for somebody who does not speak insurance. Is the key “without underwriting?” What does that mean?
The business of insurance essentially involves finding some adverse event, such as getting sick, carefully figuring out what the true likelyhood of it happening is, then setting premiums that’ll let you pay off the claim and still have enough left to make a profit for yourself. In the health insurance business, one part of that process involves figuring out exactly what the health status of a prospective customer is, because customers more likely to get sick are customers more likely to have an expensive claim, and the more expensive claims you get the higher your rates have to be. Underwriting is the process by which that risk assessment is carried out.
So insurers will establish rules about pre-existing conditions, or they’ll ask a series of specific questions from those who apply as a means of quantifying their risks. They can then deal with those risks by either charging more to those likely to cost the company more, or just refusing to take on the risk of insuring them. Either way, the effort is to keep the risk of large claims among the pool of people they insure at a level where the premiums cover it.
The HIPAA law requires that any individual insurer in California has to insure an individual who’s lost his employer provided coverage. As a consequence, Aetna risks getting stuck with a group of high risk members if it stays in the individual insurance business. They were probably able to “make it up in volume” before, but with Obamacare seriously eroding the number of people shopping for individual coverage, and with the ability to sidestep the HIPAA requirement by just not being in the individual policy business, it probably made sense for them to just exit that market. The fact that they wouldn’t be leaving those folks out in the cold because the exchange companies will have to take them without underwriting may have figured in there too.
Hope that was clearer.