by Mark V. Pauly and Robert D. Lieberthal
Health Affairs: May 6, 2008

This paper describes the relationship between type of insurance coverage in one period and the likelihood of becoming uninsured in the next. We find that for people at the median health status, becoming uninsured is most likely for those with individual insurance, less likely for those with small-group insurance, and least likely for those with large-group insurance. However, for people in poor or fair health, the chances of losing coverage are much greater for people who had small-group insurance than for those who had individual insurance.

These results are consistent with a complex characterization of the effect of high risk on individual insurance premiums: high risks pay more if they seek individual coverage after they have become high risks, but individual coverage provides better protection (compared to group insurance) against high premiums for already individually insured people who become high risk. Specifically for an initially insured person of average or better risk, dropping or losing health insurance coverage is more likely if the coverage was expensive individual insurance than if it was cheaper and tax-subsidized group insurance. But group insurance has a tear in its net of protection: it leaves a person who becomes a high risk more vulnerable to dropping or losing any and all coverage than does individual insurance.