Why did we stop looking for individual health insurance?

A weird thing happened just about a year ago: the number of Americans looking for individual health insurance policies dropped dramatically.

That’s the indication from new data on eHealth Insurance, which is the leading seller of health insurance policies on the Internet. The company has sold more than 1 million insurance policies and operates in all 50 states, which makes it a pretty good bellwether for what’s happening in the individual insurance market.

Carl McDonald, a managed care analyst for Citi Investment Research, passes along these charts that show both eHealth Insurance’s traffic and insurance policy applications steadily decreasing since the start of 2010. Here’s the chart on how many people apply for policies, which has dropped about 13 percent from where it was at this time last year:

The site’s web traffic has decreased, too:
To be fair, this data only captures eHealth Insurance’s experience. What it says about the overall individual insurance market may be limited. It could indicate Americans migrating towards other means of obtaining health insurance. But it’s doubtful: Employer-sponsored insurance has steadily decreased for years now. And Americans aren’t getting much coverage through the healt-care law’s high risk insurance pools, which have seen dismal enrollment.

So, what happened? eHealth Insurance, a publicly-traded company, declined to comment for this blog post. But its CEO, Gary Lauer, did address the issue on its last earnings call. He said that the health-care law altered the demographics of who pursues individual market policies. For one, it banned pre-existing conditions for kids under 18, causing some insurers to stop offering child-only policies altogether. That could be part of an overall decrease in policy applications, as some children are rolled into a family application. Young adults under 26 are also less likely to pursue individual policies, as they can now join their parents’ health insurance plans.

The health law’s medical loss ratio requirement may have also played a role here. The medical loss ratio requires insurers to spend at least 80 percent of premiums on medical costs, cutting into spending on administration and profits. That, Citi’s McDonald writes, cut into eHealth’s ad budgets: “With the big drop in revenue, it wasn’t practical anymore for the company to continue spending what it had been [on advertising]. The hope was that the cost of paid search on Google and Yahoo would drop because of commission cuts, but to this point, it hasn’t really happened.” As a result, “eHealth’s paid search position is no longer as dominant as it used to be, particularly on Google.”

I don’t think though, that these factors tell the entire story. The drop off in eHealth’s traffic and application numbers looks to have started prior to the health-care law, so I’d imagine the recession was a factor. A steady increase in premiums may have also driven down applications. There are likely at least some Americans holding out for the health-care law before purchasing a policy - but since most of the uninsured don’t think the law will help them, I’m skeptical of that as a key issue. If readers have thoughts on what might be driving this trend in the individual health insurance market, I’d love to hear them.