Issue Summary

In 2024, the individual and small group health insurance markets covered approximately 32 million Americans. While the Affordable Care Act stipulated that officials regulate the two markets similarly, in most states insurers price and sell plans separately in each product segment. Both markets have their own inefficiencies and idiosyncrasies.

Adverse selection, which occurs when sicker enrollees choose more generous plans, tends to be more prevalent in the individual market. The small group market, by contrast, carries higher administrative costs, including broker fees; small group insurer markups have also typically exceeded those in the individual market in the years since the Affordable Care Act’s passage. Combining the two markets through CHOICE Arrangements (formerly ICHRAs)—accounts through which employers fund tax-free individual market coverage for their employees—offers a possible way to lower premiums and government spending while reducing some of the administrative costs associated with small group coverage.

Read the full policy brief here.