Health insurance options dwindle for self-employed

Insurance carriers began pulling out of association markets about 10 years ago amid mandates requiring the groups -- like employers -- to offer coverage to all members who wanted to buy it, regardless of preexisting conditions. Unlike employers, however, who typically pick up the much of the premiums for employees, most associations do not share in the costs. Instead, they arrange for their members to purchase coverage at group, rather than individual, rates.

In today's marketplace, that's almost always a better deal for older members and often the only option for people with preexisting conditions. But insurers are eager to sell individual policies to the young and healthy for as little as $100 a month, scooping the cream off the risk pool. That leaves higher-risk older and less-healthy people to the group market, resulting in what is known as adverse selection.

As healthy members leave an association health plan, the concentration of members with higher-than-average medical costs increases. That forces the underwriter to raise premiums. A "death spiral" sets in, when medical costs exceed the plan's ability to raise premiums to cover them.

"The problem with associations is they go into a death spiral because they get the worst risk," said Alan Fox, vice president of plan design for the American Psychological Assn. Insurance Trust, which covered thousands of psychologists and their families for 35 years before discontinuing its health plan in 1999.

The list of casualties also includes health plans once sponsored by the American Bar Assn., which still hopes to resurrect the benefit it dropped last year, and the California Bar Assn., which lost its coverage when its insurer pulled out in the early 1990s.

Before the Professional Golfers' Assn.'s health plan ran into the rough, the group had extended coverage to about 1,000 members. But the plan was discontinued in 1996 as medical costs rose and younger, healthier members bought coverage on their own at lower rates.

"If you can get cheaper coverage through the individual market, that's what you do," said Mila Kofman, an associate research professor at Georgetown University's Health Policy Institute.

But not everybody can buy an individual plan. In many states, including California, insurance companies are allowed to reject applicants for individual policies for any medical reason, including common conditions such as asthma and varicose veins. As a result, many people who lose association coverage in effect become uninsurable.