Health insurance for pre-existing condition?

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If you have a pre-existing condition, you may think it will keep you from getting affordable health insurance.

But health insurers don’t make money by denying applicants. Instead, they may offer what is known as a condition-specific deductible, or CSD, that can provide the health care coverage you need at a price you can afford.

A CSD is an annual deduction that is completely separate from your medical and/or prescription drug deductible and applies only to treatment and medication for a single health condition. Once you reach your condition-specific deductible, your health insurance plan will typically pay covered expenses related to that condition at 100 percent for the rest of the year.

Dealing with a pre-existing condition

Vincent Blair, a veteran health insurance broker based in Webster Groves, Mo., says that prior to the introduction of CSDs several years ago, insurance companies had three ways of dealing with consumers with health conditions. They could decline them outright, exclude the specific condition with an exclusion rider, or “rate up,” meaning they would charge more for the policy.

“You have some companies that say we don’t put exclusions on any conditions. Well, that sounds good, but they decline quicker. Or they’ll include the condition but charge you more money, typically on things like blood pressure or cholesterol,” says Blair. “But they can’t rate up an arthritic hip because there’s no premium they can charge to cover a $40,000 hip replacement, so they exclude it.”

In a worst-case scenario, the consumer would bear the full burden of treatment costs for their condition without the benefit of the insurer’s network-discounted rates.

Assurant Health, a health insurer based in Milwaukee, then introduced the CSD, a consumer-friendly alternative to the exclusion rider that allows the insured to take advantage of discounts with network providers.

CSD vs. exclusion rider

“It was a softer version of the pre-existing condition exclusion,” says Michael Morrisey, professor at the University of Alabama at Birmingham’s School of Public Health. “What happens is you pay whatever the insurer has negotiated with that doctor out of pocket rather than through the insurance until you hit the deductible, then the insurance takes over.”

Under a condition-specific deductible offered by Humana, consumers with health conditions may qualify for in-network deductible amounts of $2,500, $5,000 or $7,500; out-of-network deductibles double to $5,000, $10,000 or $15,000.

While it’s comforting to know the maximum amount you’ll face out of pocket for your condition in the coming year, Blair says it’s the access to the insurer’s re-priced rates that really sell a CSD.

“If you had an exclusion rider on your knee, that’s an uncovered expense and doesn’t get negotiated. So along comes Assurant and says, ‘We’ll cover you and put a $15,000 deductible on your knee.’ Why this is so genius is, they already know that if you have a torn meniscus, the bill is not going to go past $15,000, so they’re going to be out nothing, and you get the negotiated rate!”

How much is that discount worth? It so happens that Blair had knee surgery recently.

“The bill was $15,000, but after it was run through my insurance, it came to $3,200,” he says. “With a CSD, you just give them your card because you do have insurance; it’s not an exclusion, and they don’t rate you up.”

A Humana example uses a customer with psoriasis whose condition requires light therapy at a doctor’s office and a prescription cream. If his condition was excluded from coverage, he’d pay $6,000 out of pocket — with a CSD of $2,500, he’d save $3,500.

CSD caveats

Not surprisingly, condition-specific deductibles are not available for every health condition; insurers need to know what the fixed costs of a condition might be in order to price the deductible accordingly. But they are available for some medications for controllable conditions such as asthma.

“There’s a list; they know what they can do CSDs on and what they can’t,” says Blair. “If somebody had, say, two herniated discs in their back and it was bad, the company probably wouldn’t put a CSD on it because you just don’t know where that back surgery is going to go. They’ll exclude that. You’re not going to get a CSD on high blood pressure or diabetes either. Diabetes is pretty much a decline everywhere you go.”

While a CSD could save you thousands in out-of-pocket expenses each year for an excluded health condition today, they’re likely to disappear from the health insurance landscape entirely by 2014, when a provision in the Affordable Care Act prohibiting all health discrimination based on pre-existing conditions takes effect.

“Can an Assurant- or Humana-type condition-specific deductible survive in 2014? The answer is, probably not,” says Deborah Chollet, a senior fellow at Mathematica Policy Research in Washington, D.C., who is helping states set up the new reform-mandated health exchanges. “The reason is, group plans are not able to discriminate between individuals based on their health status. In general, it will be very hard for these products to survive in the market because they go hand-in-glove with medical underwriting, and there will not be medical underwriting by 2014.”

Chollet says that’s all good news for Americans with health conditions.

“At least they will get much better coverage for their premium dollar, if not also get a reduction in premium,” she says.