As companies cut corners and more entrepreneurs strike out on their own, the individual health insurance market is growing.
“There’s been a precipitous drop in the number of businesses offering coverage,” says Sam Gibbs, senior vice president of eHealthInsurance.com, an online insurance broker. (To compare insurance policies and quotes, visit Insureme.com, a Bankrate company.)
These days, the same people who traded company pension plans for self-managed 401(k)s are being asked to take on one more chore that used to be handled by human resources: shopping, selecting and purchasing health coverage. And it can be daunting. Check out some of our readers’ experiences.
Plowing through the process
Rob Snow put it off for over a year. When he left a successful online company at 39 to start Bethesda, Md.-based Snow Portfolio Management, he took advantage of COBRA, or the Consolidated Omnibus Budget Reconciliation Act, which allowed him to remain on his old company’s group plan as long as he paid the premiums. But that privilege extends only for 18 months. And he was nearing the deadline.
Finally one weekend, Snow sat down at the computer, typed in “health insurance,” “and got a million hits,” he says. “I probably spent an entire day scrolling through those. I got worn out. I probably didn’t do anything for three weeks.”
But he eventually went back to the computer, zeroing in on a few sites that allowed him to get quotes or compare policies.
His pick was a regular PPO plan with a high deductible that also allowed the family to keep the same doctors — one of his wife’s must-haves. “There’s no way she was ever going to change pediatricians,” he says. And the monthly premiums were $603, a savings of as much as $435 per month for their family of five.
“One of the reasons I probably saved as much as I did was that we’re all, thankfully, pretty healthy,” says Snow.
“Not everyone is lucky enough to be in that situation,” he says.
Not surprisingly, when you’re buying health insurance, your health is a key factor.
“The healthy individual out there buying insurance does not have that much trouble,” says Sandy Praeger, president of the National Association of Insurance Commissioners and insurance commissioner for the state of Kansas. But for people with health issues or pre-existing conditions, “it can be tough, if not impossible to find coverage in the individual market.”
And then there’s shopping for policies. For people who’ve never had to do it themselves, “there is the perception that you make a call or two and you’ve got it,” says Jerry Flanagan, health care policy director for Consumer Watchdog, an advocacy group. “You have to do a lot of research, know what you’re getting and buy it before you cancel your (current) coverage.”
“The individual market is a very difficult place for consumers to find affordable care with good coverage,” he says.
If you’re purchasing your own health coverage, there are three big issues.
- Can you get coverage?
- Can you afford the premiums on the policy?
- Does it cover what you need covered?
With group policies, insurance companies have to cover anyone the company hires. But with individual policies, carriers have the freedom to cherry-pick customers.
“In most states, companies can charge you more or deny coverage for pre-existing conditions,” says Flanagan. But in a handful of states, they can’t. Get the details from your state insurance department, so that you know what to expect.
And sometimes the exclusions or limitations don’t even concern a current condition. If you’re a woman of child-bearing age, you could face a large deductible on anything related to maternity care.
“Most individual policies will have a huge deductible when it comes to maternity,” says Scott Leavitt, national president of the National Association of Health Underwriters, and president of Scott Leavitt Insurance & Financial Services in Boise, Idaho. If the cost of the average pregnancy is $10,000, the deductible might be half that, he says.
In the face of less-than-picture-perfect health or exclusions, “I think what a lot of people are opting for are scaled-back plans,” says Praeger. Coverage may not cover certain areas, like mental health services, maternity care or drugs. And it may limit the number of times you can see a doctor or have certain screenings.
Carriers can drop coverage
Consumers buying their own coverage face another challenge that didn’t exist when they were under the group umbrella — being dropped.
Under a group policy, the insurance carrier has to cover everyone in the group. It can raise the rates on the group, but it can’t just drop someone. With individual insurance, the carrier can do both.
And then there is rescission. Some consumers report that after making claims during or after an illness, their carriers reviewed their applications, falsely accused them of lying about health issues, and rescinded coverage, says Flanagan. Not only are the consumers suddenly without insurance, but carriers sometimes send them a bill for any claims that have already been paid.
“It’s a horrible place to be,” he says.
One of the biggest hurdles for consumers who are used to having group coverage at work is starting the search.
If you’re buying, you need to know who’s selling. Go to your state insurance department Web site for a list of licensed companies and brokers who sell health insurance in your area. The state site will also have information about complaints (including complaint ratios), that paint a picture of which companies are giving the best service.
Many states offer a “buyer’s guide” to walk you through the process and will provide cost comparisons from different types of policies, says Praeger.
You can also find local NAHU member agents through the group’s Web site.
Or get a referral from someone you trust. “The personal recommendations go a long way,” says Leavitt.
Then take some time to consider what you want in a policy, says Flanagan. What’s your target premium? What kind of deductible and co-pay? What’s the scope of service you need (exclusions, screenings, annual checkups, etc.)?
After that, thoroughly search the Internet. Visit sites that offer quotes to see what kind of coverage you’re offered and at what price. Compare not just different carriers, but different types of plans with the same carrier.
As you compile information on various policies, keep a chart, says Flanagan. Jot down the company, the premium, what it covers and what it doesn’t, along with any outstanding benefits or drawbacks.
“Consumers really have to arm themselves before they get insurance,” he says.
Find an agent
Independent agents will represent more than one company, so you can cover more ground with one call.
However, not all independent agents are bias-free, warns Flanagan. Some may receive incentives to push certain policies or may get commissions from carriers, he says. So be prepared to make some more calls (and do some extra research on your own) to make sure you’re truly being offered the best deal, he says.
A good independent agent will know who is serving people with your health or lifestyle profile, says Gibbs. While one company may decline everyone with asthma and allergies, another firm could see the conditions as a small thing, he says. To complicate matters, a company’s underwriting practices can change. So even if you’re a bad risk for them today, they might want your business next year. But a good agent should be able to play matchmaker and help you find the right fit, he says.
With insurance, everyone knows to shop deductibles. But with health insurance, you also want to look at the total payout for an illness and also for the life of the policy.
Be suspicious of premiums that seem too low. And beware of policies that give you lower premiums in exchange for limits on the number of times you can see a doctor or the number of hospital or lab-related services you’re allowed.
The limited benefit plan issue “concerns me a bit, because if people aren’t aware there are limits, it can end up costing them considerably more,” says Praeger.
With a premium quote, “look long and hard if it looks cheap, because there is a reason,” she says.
And beware of discount plans, Praeger says. Many are “out-and-out fraud.”
- What are all the restrictions with this policy? If you’re not happy with the answers, tell your agent the type of coverage you want and have him shop it.
- Are your doctors and their hospitals included in your plan, including the closest hospital? “If they aren’t, are you willing to make a change for a lower price?” says Praeger.
- Is there unnecessary coverage included in your plan? “If you’re a 22-year-old male, you don’t need maternity benefits,” says Gibbs. “You’d be surprised” how companies bundle coverage, he says.
- Does the carrier have a policy limitation on how often it raises its rates? That low premium you’re quoted “might change twice in the first year,” says Flanagan.
- How long has the carrier been licensed in your state and is the license current?
Once you’ve narrowed your choices to a few options, check the carriers’ financial solvency at A.M. Best. You also want to follow up and make sure each company has a good reputation with customers.
When you finally do select the winner, fill out the application carefully. “That application will look very different from what (an applicant) filled out for their employer” under group coverage, says Flanagan. It will be more complicated and lengthy.
“What we’re seeing happening in some states is language on the forms that could mislead a person into putting in inaccurate information,” says Praeger.
Since your continued coverage depends on the form, take your time and do it carefully. When you have questions, call the company and have them explain. Keep answers honest, and be prepared to produce copies of your medical records. Review any information the broker is sending on your behalf and make sure it’s accurate, too.
Don’t cancel any current health policies until you’ve been accepted into a new plan, the check’s cleared, and you’ve reached the “effective date” (starting date), of your new policy.
Still not looking forward to the process?
“Don’t be afraid of it,” says Snow. “Take the opportunity to gather information. I know more now about health insurance than I ever did before.”
Private insurance through life stages
From the new grad to the early retirement entrepreneur, everyone’s situation is slightly different. Click on the tab that most closely matches your lifestyle for some extra tips.
New grads/young singles
- If you are covered under your parents’ policy, find out when and why your coverage would end. (Is the trigger your age, the fact that you’ve graduated or that you’ll be living on your own?) If you’re still eligible, the parents’ insurance could be a good bridge if you just need something for a couple of months until you get a job, or until a new employer’s policy takes effect.
- If you need coverage for only a limited period, you can consider short-term or temporary policies. Often written for periods of only a few months to a few years, these policies can deliver major medical coverage at a fairly affordable price. “They’re probably about half what you’d see for a full major medical policy,” says Scott Leavitt, national president of the National Association of Health Underwriters. But, he says, they don’t cover pre-existing conditions. And you usually have to be “relatively healthy” to get one, says Sam Gibbs, senior vice president of eHealthInsurance.com. Examine what is and isn’t covered, and look at all the payout limits of the policy.
- Tight on money? One option to investigate is a high-deductible, catastrophic policy. Such policies have high deductibles but are designed to cover major illnesses and accidents. Some can be paired with health savings accounts, which allows you to bank the deductible tax-free, to pay for medical care, dental visits and other health-related needs. And some employers will contribute to your HSA.
- Be skeptical with discount plans that promise cut rates with their doctors, says Jerry Flanagan, health care policy director for Consumer Watchdog. Consumer advocates have discovered cases where doctors either never heard of the plan or the “discount” rate was higher than it would have been otherwise, he says. Check anything suspicious with the state’s insurance department or consumer affairs department.
- Young families often feel the money pinch as acutely as grads and check out catastrophic and HSA plans for the same reason. One downside is that just one emergency room visit or pregnancy can leave you scrounging for the deductible. But some employers will contribute to your HSA. Best bet: Unless you can really bank that deductible (and have it ready at a moment’s notice), this might not be the best option. Conversely, if it’s all you can find that you can afford, it’s usually better financial protection against a total wipe out than nothing at all.
- Another thing that often weighs against families shopping for their own health coverage is the possibility of pregnancy. “One of the big downsides with individual coverage is maternity,” says Scott Leavitt, national president of the National Association of Health Underwriters. If a pregnancy costs $10,000, the deductible might be half that, he says. Shop around carefully. While some carriers might penalize you for potential fertility, you might actually be able to find one that doesn’t.
- Are you looking for coverage after a job layoff, or to bridge the gap between COBRA and a new employer’s health insurance? Consider a short-term or temporary policy. Written for a specific period of time (a few months to a few years), it’s cheaper than traditional open-ended coverage. “But it won’t cover pre-existing conditions, says Scott Leavitt, national president of the National Association of Health Underwriters. And it’s usually reserved for those who are “relatively healthy,” says Sam Gibbs, senior vice president of eHealthInsurance.com.
- If your income is low to average, ask about your state’s kids’ health plan. (Start with your state’s department of insurance.) Most states have the plans, though in some cases there are waiting lists. To qualify, you usually have to be below a certain income threshold (often several times higher than the poverty level). You pay premiums, just as with any other plan. Since it’s covering a larger pool of kids, you might be able to buy more complete and affordable coverage for the little ones than you are able to get on your own.
- Does someone in the family have health problems? Consider covering them through your state high-risk pool. Subsidized by the insurance industry, coverage is guaranteed for anyone who qualifies, and your pre-existing conditions are covered. The bill can be pricey, “but, especially people with existing health conditions, don’t want to be without coverage,” says Sandy Praeger, president of the National Association of Insurance Commissioners. Requirements: you’ve been denied coverage or the premiums you’re being quoted are too high to be affordable. If you have alternatives, the high-risk pool “is a bad place to end up,” says Jerry Flanagan, health care policy director for Consumer Watchdog. One reason is that there are sometimes limits on the amount the policy will cover, which can be a problem for someone with health issues, he says. So ask about restrictions or save the option as a last resort.
- Whether you want to grab the gold watch early or just go off and start your own business, it can be a tricky time as far as individual coverage. If you’re well off, you can probably afford your own premiums. But if you have a minor health condition or two, carriers could be finicky about extending coverage. The solution is the same as for the younger set — shop carefully. Not every company will view every condition the same way.
- Ironically, some early retirees find themselves turning to the same solution as cash-strapped young grads — catastrophic policies with health savings accounts. But at this stage, it’s either because those policies are all that’s being offered, because major medical plans include too many exceptions for pre-existing conditions or because the premium price is too high even for someone who’s financially comfortable.
- Price your company’s COBRA (Consolidated Omnibus Budget Reconciliation Act) plan. Under most circumstances, you’re eligible to stay on the company’s group insurance for 18 months after your employment ends. The only caveat is that you have to pay the premium yourself. (Send checks on time every month, and in such a way that you can prove when they were mailed and delivered.)
- If you’re close to 65 (or will be once you’ve exhausted COBRA), you can also consider a temporary policy to bridge the gap until Medicare begins. It won’t cover pre-existing conditions, says Scott Leavitt, national president of the National Association of Health Underwriters. And you need to be “relatively healthy” to secure this type of coverage, says Sam Gibbs, senior vice president of eHealthInsurance.com. But, because it’s only short-term, it’s usually cheaper than an open-ended policy.
- You can also evaluate the coverage available through your state’s high-risk pool. (Again, best source: your state insurance department.) States offer coverage to people who either can’t get coverage or can’t get it at a rate that is reasonably affordable. You can’t be denied, though it can take several months to process paperwork, says Jerry Flanagan, health care policy director for Consumer Watchdog. And pre-existing conditions are covered. But because most people taking this route have health issues, coverage can still be high, says Sandy Praeger, president of the National Association of Insurance Commissioners. And sometimes coverage is limited, says Flanagan, who calls the pools “a bad place to end up.” Research alternatives and save this one for a last resort.
- Be careful in evaluating group insurance offered through affinity groups and associations. While some might be exactly what you need, others can promise more than they deliver. And it’s up to you to ferret out which is which. Probe carefully to get answers on deductibles, limits on services and prescriptions, and total payout limits on illnesses and the policy as a whole. Find out who provides the coverage and check out the company’s track record (both financially and in terms of customer service). And how does the policy and price compare to your other options?