Individual – and Employment-based Group Plans


The Affordable Care Act (ACA) addressed many problems in the private insurance market that had created barriers to health coverage. Before the ACA, older adults who were too young to qualify for Medicare but did not have access to job-based insurance faced difficulty accessing coverage in the individual health insurance market. Older adults who needed to purchase coverage in the individual insurance market, such as people who were self-employed, were frequently denied coverage based on preexisting conditions. And they were often charged unaffordable rates based on their age. 

The ACA implemented several requirements for insurers nationwide to address these and other access and consumer protection issues. 

  • The ACA requires health plans to appropriately balance spending on medical care with expenditures for administrative costs and profits. This balance is known as the medical-loss ratio. Plans that do not maintain an appropriate balance must pay rebates to employers, consumers, or both. 
  • It creates standards for essential health benefits that private plans must cover. 
  • Annual and lifetime dollar limits on benefits are prohibited. 
  • Factors that insurers can use to vary premiums, known as rating, are limited. Under the ACA, insurers can only vary premiums for small groups and individuals based on family size, geographic rating area, age (3:1), and tobacco use (1.5:1). Health status cannot be used to set premiums. 
  • Insurers are required to issue a health plan to any eligible individual or group applicant regardless of their health status or other factors, known as guaranteed issue. 
  • Insurers provide consumers with a summary of benefits and coverage for each health plan and a uniform glossary. To help consumers look beyond premiums to a plan’s overall value, the summary of benefits and coverage provides information on a plan’s out-of-pocket costs as well as standardized coverage examples showing how a plan covers costs in a particular situation. 

High-risk pools: Prior to the implementation of the above ACA provisions in 2014, many states used high-risk pools to guarantee access to coverage to otherwise uninsurable people. These high-risk pools have largely been phased out or now serve more limited roles. Over the years, some proposals to repeal the ACA called for again relying on high-risk pools to serve high-risk people. 

Premium stability programs: To help the individual market absorb more individuals with poor health, the ACA includes measures to spread the risk of insuring them during the transition to new market rules and then permanently. Risk adjustment, risk corridors, and reinsurance pools were enacted at the federal level to help insurers handle the higher costs of covering this population. Risk adjustment is a permanent program, while the ACA created the federal risk corridor and reinsurance programs only through 2016. States have also adopted state reinsurance programs to help lower premiums. 

Marketplaces: In the past, some states authorized public or private mechanisms to pool purchasers, structure plan choices, and in some instances, negotiate premiums. The ACA built on this idea, creating health insurance benefit exchanges (also called marketplaces) to provide a new path by which individuals and businesses could access insurance. Qualified individuals and small businesses can buy qualified health plans through these exchanges. States and the federal government have critical roles and responsibilities as they organize and maintain exchanges, set the benefit standards for coverage offered in the exchanges, and certify qualified plans. Education and outreach efforts are critical to helping people learn about the exchanges, their coverage options, the availability of subsidies to lessen the cost of coverage, and the enrollment process. Continued monitoring and oversight by state and federal regulators are needed to identify and correct problems and ensure that reform goals are achieved. 

High-deductible health plans and health savings accounts: As health care costs and premiums rise, pressure grows to develop more affordable coverage options. In response, insurers have introduced products that make consumers bear more front-end out-of-pocket costs in exchange for lower premiums. These are known as high-deductible health plans (HDHPs). Congress gave a boost to HDHPs meeting certain parameters by authorizing tax breaks for health savings accounts (HSAs). Funds added to HSAs can be used to pay out-of-pocket expenses under an HDHP. HSA contributions are tax-deductible up to a statutory limit. Interest accrued and withdrawals for health expenses are tax-free. However, contributions are not permitted after Medicare enrollment. 

Proponents contend that HDHPs will contain costs by making consumers more cost-conscious when initiating and using care. However, the growth of these plans raises several concerns. First, people who choose these plans are more likely to be healthy. That leaves fewer healthy people in the more comprehensive products. Depending on risk pooling requirements, this can worsen the risk profile of more comprehensive plans and result in higher premiums for those who do not choose HDHPs. Second, consumers without the financial resources to pay for care before they meet the deductible may be unable to obtain needed care. Those with lower incomes and expensive chronic conditions are particularly vulnerable. 

Enrollment in HDHPs accounts for a growing share of both the individual and group markets. For consumers with modest incomes or facing high premiums, an HDHP may be someone’s only affordable option. Employers facing steep annual premium increases in the small-group market may also turn to offering HSA-qualified HDHPs instead of more comprehensive health plans. Employees of large employers also represent a growing share of beneficiaries in these products. However, many people enrolled in HDHPs do not have an HSA account to help reduce their out-of-pocket costs. And the tax benefits to HSAs tend to benefit people with higher incomes rather than individuals with modest incomes. 

Research suggests that, at least in the short term, total health spending is lower for beneficiaries with HDHPs. Still, research is ongoing due to the relatively brief history of these products. Evidence points to plan savings. However, results indicating whether people get the care they need are more mixed. Some findings suggest that access to care is a greater issue in HDHPs than in more traditional coverage. That access is an issue for anyone with a modest income, regardless of health plan type. Also, it is unclear whether deferred treatment results in higher spending later in one’s life. 

Private exchanges: In the group health insurance market, health care consulting companies and others have created private exchanges that negotiate health plan offerings. These exchanges market themselves to employers as a way to lower benefit, administrative, and operational costs. Private insurance exchanges negotiate health plan offerings and take on other tasks that employers used to assume when they offered health insurance benefits. As private exchanges have different business models and features, they may target different segments of the group (and, in some cases, individual) market. They may also offer employees or retirees new or additional coverage choices. Private exchanges and participating employers have the flexibility to structure the benefits. However, they must still comply with federal and state insurance rules, broker licensing requirements, and Employee Retirement Income Security Act (ERISA) regulations. 

Federal vs. state oversight: Regulation of private health insurance, including individual health insurance and many job-based group plans, has traditionally been a state responsibility. However, regulation of self-insured employer benefit plans is a federal responsibility through the federal ERISA. ERISA rules often preempt state requirements. Consequently, consumers have different protections depending on their state of residence and whether they are covered by a state-regulated insured health plan or a federally-regulated self-insured health plan. 

Excise tax on high-cost employer-sponsored health coverage: This provision of the ACA was repealed in 2019 before it was ever implemented. It had called for a 40 percent excise tax on employer-sponsored health coverage that exceeded specific dollar thresholds, sometimes referred to as the “Cadillac tax.” Though this policy was never implemented, many economists believed it could help constrain growth in health care spending by prompting employers to limit or reduce generous health coverage. Thereby demand for health care services and spending would be reduced. Concerns about this excise tax included whether it would have other harmful consequences. Among them was whether employers with an older workforce and those in high-cost geographic areas would be penalized for these factors unrelated to the actual generosity of health benefits (see also Taxation of In-Kind Benefits). 




Federal and state policymakers should enact health care reform that achieves universal access to health care coverage and provides adequate protection against health care costs. 

Reforms should apply uniformly to all insurers and self-insured plans in a particular market. It should cover all individual, small-group, and large-group purchasers to ensure a level playing field. Associations, multiple employer welfare arrangements, and similar nontraditional pools should be subject to the same rules as the rest of the market. Any expansions of allowable insurance arrangements designed to enhance access to coverage and plan choice should also be subject to those same rules. These include association health plans or sales of health insurance across state lines. 

These arrangements must: 

  • not restrict participation or coverage based on demographic characteristics, health status, or type of employment; 
  • not discriminate in pricing based on age, or weaken existing pricing protections for older adults (e.g., limitations on age rating); 
  • not undermine existing state and federal consumer protections by allowing sales of new plans that are subject to weaker oversight and consumer protections than plans sold under current law; 
  • include sufficient federal and state oversight to ensure consumers are protected; and 
  • provide consumer access to fair grievance and appeals procedures. 

Furthermore, federal policies on private insurance markets should set a floor for states. But they should not preempt or circumvent higher state standards. 

Policymakers should examine changes to Affordable Care Act (ACA) rating requirements to further phase down age variation from 3:1 to pure community rating. 

Policymakers should carefully monitor premium increases and trends as well as medical-loss ratios to ensure that rates are reasonable and fair. This information should be transparent and made available to the public (see also Insurance for discussion of the authority to approve rates prior to their implementation). Policymakers should monitor premiums of comprehensive health products as well as their deductibles, cost-sharing formulas, and out-of-pocket maximums to ensure continuing affordability of private health coverage. 

Policymakers should ensure consumers have access to clear information to understand how to compare and shop for health plans, use their coverage, and make meaningful decisions. 

Policymakers should monitor the implementation of the uniform summary of benefits and coverage. They should use consumer research to refine it as needed to improve consumer understanding of: 

  • benefits, limitations, and exclusions; 
  • what spending will and will not count toward satisfying deductibles, how deductibles for family policies work, and whether network discounts apply to services received before the deductible is met; 
  • potential out-of-pocket costs under the plan; and 
  • provider performance, to the extent it is available. 

Insurers and private sponsors of health plans that include health savings options should disclose the ownership of, carryover provisions in, and retention rights to health account funds. Contribution and spending rules for the accounts, including their tax treatment, should be transparent as should fees, charges, and limitations associated with accounts. 

Insurers and health plans should prominently disclose in plain language to new and renewing consumers if a health product (whether a major medical or a limited-benefit plan such as an indemnity or dread-disease plan) meets the standard to satisfy the ACA’s individual shared responsibility requirement. 

Risk pooling and risk-sharing mechanisms

Policymakers should explore reinsurance, risk adjustment, or similar mechanisms to spread insurance risk more broadly. These mechanisms should be improved and extended in order to strengthen the functioning of the individual and small-group health insurance markets, including exchanges. In states with high-risk pools, policymakers should provide a sufficient funding base to bring rates in line with those in the broader market and ensure that all who need to enroll can do so. Subsidies should be provided to make coverage affordable for those with modest incomes. 


Exchanges, both public and private, should: 

  • negotiate with plans and vendors to contain costs for participating employers and individuals; 
  • ensure that consumers have meaningful choices among plans, including by standardizing benefit offerings to simplify plan comparisons; 
  • consider limiting the number of offerings so consumers have a manageable choice among meaningfully different products; 
  • provide consumers with information and decision supports to help them navigate their options, including easy-to-find and easy-to-use information on plan networks and drug formularies; and 
  • offer a simple enrollment process. 

Employers contracting with private exchanges should: 

  • oversee the activities of the exchange, 
  • guarantee that consumers have access to fair grievance and appeals procedures, 
  • ensure employees pay a premium that does not vary by age, and 
  • continue to provide reasonable contributions toward employee premiums on a pretax basis. 

Public insurance exchanges

Policymakers should ensure that state and federal health insurance marketplaces maintain an accessible application-and-enrollment system and infrastructure. The system should provide consumers with a single access point to coverage choices. It should help them navigate their options and offer a simple application-and-enrollment process. 

The federal government should strongly support and ensure adequate funding for robust consumer enrollment education and outreach activities as well as mechanisms such as navigators. 

Policymakers should ensure that state and federal health insurance marketplaces: 

  • give consumers an informed voice on the governing body;  
  • have the authority to contract selectively with plans offered through the marketplace and exercise that authority; 
  • negotiate with insurers for packages of benefits and coverage that meet minimum coverage requirements and negotiate plan premiums; and  
  • maintain standards for benefit offerings based on consumer desires, including the desire for choices they can easily understand and compare. 

State and federal marketplaces must be publicly accountable for the oversight of the plans offered. 

Essential health benefits (EHB)

Policymakers should support EHB requirements under the Affordable Care Act. They should ensure that consumers who purchase individual and small-group health plans have comprehensive coverage. Federal and state policymakers should continue to monitor the implementation of EHB requirements and assess their impact on consumers, including standards surrounding the benefits, variation in the minimum benefits across the states, adequacy of prescription drug coverage and other benefits, and the affordability of premiums and cost-sharing. Any changes to EHB requirements should continue to ensure comprehensive coverage for consumers and strong protection against annual and lifetime limits on coverage for people enrolled in private coverage, including those in large-group employer coverage. 

Cost containment

Policymakers should use cost-containment features, such as chronic disease management and incentives, for administrative effectiveness (see also Private Health Plans: Managed Care in this chapter for policy regarding value-based benefit design and reference pricing). 

High-deductible health plans (HDHPs)

Policymakers should monitor these products to determine how they compare with traditional products. HDHPs, even when paired with health savings accounts (HSAs), are not optimal in providing adequate, affordable coverage to consumers who currently lack access to health insurance. 

Policymakers should monitor: 

  • characteristics of enrollees, 
  • health service utilization and health outcomes among enrollees, and 
  • affordability of coverage and health spending, especially for vulnerable populations for whom high deductibles and cost-sharing may be a barrier to care, exhaust savings, or result in unaffordable medical bills. 

High-deductible plans should cover preventive services, services for certain chronic conditions, and certain maintenance drug treatments as benefits not subject to the deductible. 

The Centers for Medicare & Medicaid Services should ensure consumers receive clear and unbiased information about interactions between Medicare enrollment and HSAs associated with HDHPs. 

Employee Retirement Income Security Act (ERISA) and state-regulated health plans

Federal insurance reforms should apply equally to ERISA plans and state-regulated health plans. 

Congress should amend ERISA to allow states to apply their health care reforms to both ERISA-covered health benefit plans and state-regulated insurance plans. 

These reforms might include: 

  • consumer protections and grievance procedures, 
  • broad-based financing strategies to contain costs or provide funding to improve access and coverage, 
  • health insurance market reforms, 
  • financial solvency guarantees, 
  • uniform claims procedures, 
  • and uniform utilization and cost data. 

Excise tax on high-cost employer-sponsored health coverage

Federal policymakers should consider efforts to achieve greater progressivity in the tax code while also seeking to constrain health care inflation. Policies designed to discourage high-cost employer-sponsored health coverage should ensure that such policies have appropriate safeguards. Such policies should not disproportionately penalize employers with older workforces or increase costs for workers with low incomes. Nor should they discourage employers from hiring and retaining older workers. They should also adequately account for employers’ variations in health costs that are unrelated to the generosity of their coverage, such as their workforce’s age, gender, and geographic location (see also Taxation of In-Kind Benefits and later discussion in this chapter’s Retiree Health Coverage section).