Consumer Guide To Individual Health Insurance
How is individual insurance different from group insurance?
Individual health insurance is, quite simply, coverage that an individual purchases for himself and/or his family. Individual insurance policies and provisions are regulated by the state where the policy is purchased. Individual policies are often purchased with the advice of a professional insurance producer due to the complexity of coverage offerings and the premium cost.
Individual insurance is very different than group health insurance, which is the type of insurance that is offered through an employer. Since laws mandating what types of services must be included in individual policies are often different than those dictating what must be included in group policies, benefits are generally less extensive than what most people would receive through coverage they have through work. Sometimes individual health insurance consumers have the option to pay extra for coverage of additional services like maternity coverage. This extra coverage is referred to as an optional rider.
Coverage in individual policies may be limited due to pre-existing conditions with certain kinds of medical care excluded as a result. This is often referred to as a "rider." This means that applicants for individual insurance will need to complete a brief medical questionnaire when applying for benefits and, unlike a group insurance policy, in most states a company can decide not to cover people with very serious medical conditions (e.g., HIV or cancer), deeming them "uninsurable."
Cost is often the primary factor for individual health insurance consumers, which is another reason why the benefits included in individual policies are often simpler. In addition, deductibles (the amount you have to pay before insurance benefits begin) and cost-sharing (the fees you pay directly to medical providers at the time of service) are also generally higher.
Since medical services can be quite costly, the insurance premium for individual coverage is small compared to the amount an insurer may have to pay for claims. For example, a comprehensive individual insurance policy may cost $4,000 for a 30 year old male for a year (actual premium costs vary by geographic area, benefits selected and other factors, this is an estimate for comparison purposes only).. A broken leg that needs surgery (lower leg fracture surgery) is estimated to cost $13,175 by the Healthcare Blue Book (www.healthcarebluebook.com
). Since claims can easily outstrip medical claims costs for one individual, insurers "pool" risks (see below) to spread claims losses among all of the members of the pool.
How are premium rates determined?
In the vast majority of states, when you apply for individual health insurance coverage, you are asked to provide health information about yourself and any family members to be covered. When determining rates, insurance companies use the medical information on these applications. Sometimes they will request additional information from an applicant's physician or ask the applicants for clarification.
If the insurance company is unable to obtain information necessary to accurately determine the risk of a particular applicant, it will underwrite more conservatively, meaning that the assumption relative to the missing information will be negative rather than positive It is in the insured's best interests to provide as much information about their medical history and condition as possible so that the premium quoted accurately reflects their health status.
Example: A person has a history of high blood pressure, but it is controlled with medication and he is not overweight. If the company is unable to determine if that individual smokes or if he has normal cholesterol, the company will assume that the missing information is negative and rate accordingly.
Once the company has determined your health status, you will be assigned a rate class by the company and put into a pool of other insured individuals with similar health status. Your premium will be the rate charged to that entire class of customers. Subsequent annual renewal premium rates will be determined not by your individual claims, but instead by the claims experience of the entire rating class pool.
Are any pre-existing medical conditions covered?
Even though in almost every state an individual insurance company can choose not to offer coverage to people with serious medical conditions, most Americans don't have perfect medical histories and most still qualify for individual coverage. However, there are some individuals who do not decide to purchase health insurance coverage until they know that they have a medical problem that will require the use of benefits. This is known as "adverse selection," and it can be a serious problem for individual market insurance companies since their ability to spread risk is so limited.
To help prevent adverse selection, insurance companies are allowed to look back at your medical history for pre-existing conditions and may choose not to cover certain conditions for a specified period of time. This is known as an exclusionary, or pre-existing condition, waiting period. The amount of time an insurance company can look back at your medical history, and the length of time an exclusionary period can last, vary on a state-by-state basis. NAHU's Health Care Coverage Options Database
will tell you what the requirements are in your state.
In some states, you can receive credit against a pre-existing condition waiting period if you have had prior health insurance coverage within a specified number of days. The amount of the credit against the waiting period is generally proportional to the length of the prior coverage.
Also, many states allow health insurance companies to issue elimination riders to people who have pre-existing medical conditions. Elimination riders allow for insurance companies to offer an individual with pre-existing condition coverage but exclude coverage of that pre-existing condition.
Example: An individual has severe seasonal allergies but can control them with medication. A company may offer the applicant two policy options: a policy at a more expensive rate with full allergy coverage and a pre-existing condition waiting period, or a cheaper policy with no waiting period that excludes allergy coverage. The individual may find that it is more affordable to buy the cheaper policy and pay for his allergy medication and related medical expenses out-of-pocket.
Can I still buy individual insurance if I have a very serious pre-existing medical condition?
In most states you can be turned down for individual coverage if you have a very serious medical condition (e.g., HIV or cancer). Fortunately, even though they are not required to do so, most states have developed some way to provide uninsurable people with access to individual health insurance coverage. In addition, federal health reform under the Patient Protection and Affordable Care Act (PPACA) provides a pre-existing condition insurance plan for states that don't have their own program. Twenty-seven (27) states provide coverage to medically uninsurable people through high-risk pools. The federal government, through the U.S. Department of Health and Human Services (HHS) runs the Pre-Existing Insurance Plan in twenty-three (23) states and the District of Columbia.
Anyone interested in learning more about pre-existing condition insurance can visit PCIP.gov
for state-by-state information on pricing, premium and eligibility.
How has PPACA changed coverage for a pre-existing medical condition?
Under PPACA, as of March 23, 2010, health plans can no longer exclude, limit or deny coverage to a child under age 19 solely on the basis of a pre-existing condition. Beginning in 2014, insurers providing individual insurance will no longer be able to, in most cases, exclude, limit or deny coverage for any American solely on the basis of a pre-existing condition. There may be some situations where a plan has maintained special "grandfathered" status where this limitation would not apply.