Individual Health Insurance: Making the Switch
Originally published on: 2/3/2006 5:35:14 AM
First of all, despite the fact that almost everyone reading this that has health insurance has it through their employer, this hasn't always been the case. It's a weird artifact of World War II era policy in the United States. For a time, wage increases were frozen and benefits and "perks" were added to jobs in order to get people to join on.
When the wage freezes were lifted, people had gotten used to the idea of health care coming with their job and it stuck. The problem with having your employment and your health care tied together is this. When you are most in need of health insurance, you're least able to work.
Most employers wouldn't continue having someone on as an employee while they spend 3 months in traction and another 2 recovering at home. The kinds of illnesses and accidents that can result in $500,000 worth of medical expenses are the same ones that will have your employer "letting you go".
Yes, there's COBRA insurance that's offered to you to continue after you are no longer employed and that's a good thing. However, the last time I was offered COBRA, the monthly premiums were $800/month for what I found on the open market for $250.
Since there are only 2 of us (for some reason, Blue Cross doesn't want to cover the dogs), and her policy considers 2 the same as "family", the rates are higher for us than they need to be. So, I set out to get my own policy.
I used EHealthInsurance (hereafter EHI) to go through the process and I think that how I made my decisions and what I learned along the way might be useful if you're wondering about individual health insurance as well.
EHI lets you shop for policies without giving any contact information. That was one of the biggest "pro" arguments for me using them. You do need to give an age and smoking information for everyone who will be on the policy, but that's it and you can start looking at plans.
My philosophy on health insurance is that I have a total annual cost of health care. This includes flu shots, the occasional doctor's visit, a couple of teeth cleanings, a new pair of glasses, and any emergencies that may come up. Everything but the emergencies is pretty routine. There aren't major variations in what that includes from year to year. As such, it should be planned for and not some big surprise that I need to buy a new pair of glasses.
That's why the new HSA (Health Savings Account) setups appealed to me. They set a higher deductible, where you pay for the first $X of your health care each year, but can do so pre-tax via the HSA and if you don't spend it all, it rolls over each year for medical expenses and finally into an IRA when you retire.
Now, if you depend on someone else to manage your savings (like overpaying your taxes to get a big refund), you're not going to like this setup. However, this is the setup that most effectively manages my annual health care costs, which is the only number I care about.
So, I started by only looking at plans with an HSA. Then I filtered out what I consider to be one of the most dangerous things in modern US health insurance: 80% payment. There's a pretty good chance that many of you reading this have a policy that has the insurance company paying 80% of the bill after your deductible instead of 100% of it. That's fine and acceptible when the bill is $1000. I can manage to pay $200. It's no big deal.
However, when a couple of weeks in the hospital, coming in via helicopter and ambulance through 2 hospitals and the emergency room can quickly approach $250,000, 20% can leave you, the person who has health insurance with a bill for $50,000. It's no wonder that medical bills are the number 1 cause of bankruptcy in the US.
Aside from buying luxury goods, a house or a car, you'd have to be incredibly irresponsible to spend that kind of money in 2 weeks. Yet, one simple accident and you might just have. The catastrophy: cancer, accident, etc. are the reason for health insurance instead of just getting a loan or a credit card. When the policy doesn't cover all of the disaster, it might as well have not covered any of it.
As a result, I won't consider any policy that doesn't have 100% coverage after the deductible. This is called no "coinsurance". So, I added that to the HSA filter.
I was then presented with a variety of policies to choose from based on where I live and those filters. They ranged from $5000 deductibles to $1000 deductibles and varied companies. As I've already been dealing with Blue Cross, I narrowed the field a bit more. The price range between the policies was now mostly about deductible. So, I did some number crunching.
The higher deductible plans didn't actually reduce the payments by nearly as much as the extra annual cost would be for the extra out of pocket cash, so I ended up choosing a plan that, for me, was $116/month for a $1000 deductible and no coinsurance. Your rates will vary according to age, health, etc. However, this was better than the policy I was on.
So, I went to fill out the application. Here's where I made my first big mistake. I hadn't gathered all of my medical information. You'll need your doctor's name and address, medications and treatments for the past 5-10 years, etc. In short, dig up all of the medical info you can find before you start. It will save you a LOT of time.
Because I didn't have all of the information handy, it took me a while to finish the application. Every time I'd finish a step, they'd as for more information I didn't have handy. Which, of course led to my second mistake.
I didn't plan on it taking as long as it did to fill out the application and when I finally was done, I was shocked to find out that EHI, while a web-based setup, in the end gives you a PDF to print out and mail in with a check. By the time I reached this step, I was faced with the grim reality of the calendar.
My insurance that I had previously was about a week from expiring and I had to mail this thing in and wait for it to be processed. Being the paranoid freak that I am, I of course had visions of coming down with a long-term life-threatening illness (3 or 4 at the same time, so as to need to call in FOX TV's Dr. House) while some hospital administrator shook his finger at the doctors' every test and treatment suggestion.
So, I filled out the form that they suggested to get a short term policy. This was something like $50/month and would cover until the regular policy kicked in. Enter my 3rd mistake and my aforementioned paranoia.
When I was asked questions about whether a policy would be in effect when the short term policy kicked in, I overthought it and said that, yes, there might be if my application for the regular policy went through by then. I was summarily rejected. This of course led to a tinfoil hat meltdown.
When I recovered, I called the phone number to see if possibly I could straighten this all out. I HATE calling the phone number. Doesn't matter if it's to order a pizza or prevent long term hospitalization, I am not a fan of the phone. So, this was a big step for me. If it would be a big step for you, too, do it anyway. Calling them took hours of pain and anguish and eliminated it in like 10 minutes. I was given the "right" answers to the questions and sent on my way to reapply for the short term setup. This policy went into effect immediately and the nervous freak on my shoulder went back into lurking in the shadows. I was covered.
"But you still don't have the real policy approved yet", whispered the freak from his hiding place.
Ah, the freak has a point. But, I got my notice in the mail yesterday that my policy is underwritten and that the rest of my information is on its way. When it does, I'll cancel the short term policy, set up my HSA and I will officially join the ranks of those who have individual health insurance.
Comments
commented on 2/3/2006 Thanks for writing this up. I'm a much bigger fan of individual health insurance than employer sponsored for two reasons - it gives me better idea of what insurance costs and I'm not reliant on the a employer's HR decisions.
My first glimpse at the COBRA costs and I knew there had to be a better way.
commented on 2/3/2006 No problem. I think there's a lot of pent-up dissatisfaction with the whole healthcare setup in this country (and this state), but without any idea of what the alternatives are, people are just gritting their teeth and swallowing what they've been given.
Prime example is how just over New Years, Shelly had a nasty toothache. She went in for an exam and was scheduled for a root canal. They followed up with a temporary crown and a more permanent crown this week.
Here we are in the first week in February and that little adventure is not only going to cost us $1000 out of pocket, but we'll be paying entirely out of pocket for any cleanings she has the rest of the year as well. And, this is *with* dental insurance.
After looking, it's clear that what passes for dental insurance is little more than a savings plan to cover 2 x $200 cleanings a year (premiums $360) with a discount and then a discount on big services (50%).
How exactly is an employer really helping you out with a policy like that? I can probably get it discounted that much on my own and not have to submit any paperwork (you should see the mountain of envelopes from dentist offices).
I, of course, have the added incentive that I'm the only employee of a company that I own, so I either have to go on my wife's insurance or make the decisions myself, which kind of forced the issue a bit, but I think it will end up forced for more and more people over the next few years.
On the flip side (because the glass is too big and this site is fair and balanced even if I'm a little unbalanced)....
When a lot of companies complain (particularly big companies) about "health care costs", it's often about the *percentage* of increase and not the dollar amount. I mean, for the policy I described for myself, the premiums add up to $1400 a year.
Note that I'm not discounting what families with kids, etc. are paying or that those costs are rising, but when you look at an employer's costs for an employee, say a $50,000/yr programmer, health care is 2% of cash compensation.
To put that number into perspective, consider that the *Medicare* percentage is actually 2.90% (half paid by employee, half by employer, all paid by me when self-employed). Meaning, I'm still paying more for my Medicare contribution than for my "live" health coverage.
commented on 2/6/2006 I am not familiar with the MN plans, but I can tell you all HDHP (HSA compatible) plans are not alike. Some will cover pre-ex conditions in full, while others don't. That's OK as long as you were not sick, or did not take medication of any kind in the prior 12 - 24 months. If so, you basically have a plan that only covers accidents.
And there are those nasty OON (out of network) charges that WILL crop up no matter how diligent you are. Some plans limit your exposure to OON charges while others set no cap. The no cap plans are a major surprise when you find your anesthesiologist, pathologist, therapist and medical transport company are ALL out of network.
commented on 2/6/2006 While I don't think I mentioned it, I actually chose an indemnity policy instead of either a PPO or HMO plan at least in part because you can choose any doctor you want.
The pre-existing condition, etc. is a part of even a lot of employer-sponsored plans too, especially if there was a gap in coverage. Most will be OK with it if you've been covered.
The horror stories for health insurance (not covering an illness, OON charges, etc) are things I've heard about pretty much every type of policy out there. For every choice there is, you have to read the fine print.
commented on 2/6/2006 The indemnity plan is the most expensive of all. The premiums are always higher and your carrier has no leverage with your providers. In other words, the providers are free to charge whatever they wish. Your carrier will reimburse at R&C (reasonable & customary) which may be half or so of what your provider bills.
You can protest to the provider, but they are under no obligation at all to reduce their fee to match the carrier payment. And I have yet to see a provider who does reduce their charge.
The pre-ex may not be an issue to you, but that is not the case with most folks. They really take issue when last years flu/bronchitis returns. The doc visit & ensuing Rx is submitted for payment only to be denied.
It can get even nastier with other, seemingly benign afflictions such as hypertension.
In GA (where I live) Blue and Aetna do not cover ANY pre-ex for the first 12 policy months, regardless of a prior gap or not. Most employer plans are more liberal even if you have not had prior coverage.
At least with your indemnity plan you won't have an argument on OON charges because none of your providers are in network.
My earlier point was this. In GA, Blue will not cap your OON charges under their HDHP/HSA plan. Other carriers will cap OON at $1,000 - $2,500.
That's the difference in a $40k claim where your out of pocket (in your example) is $1000 - $2000 vs. an out of pocket of $10,000 or more when the plan does not cap OON charges.
Who reads the fine print any way? Most insureds don't even bother to read the big print.
commented on 2/6/2006 Bob,
Thanks for sharing some numbers with us. I think you're highlighting the issues with health insurance in general, independent of employer-sponsored or individual supported.
commented on 2/7/2006 Definitely avoid the short-term policies. Lots of paperwork to renew. And many short-term policies have terms that essentially prevent you from renewing if you file as much as a single claim. Also, I think they exclude lots of preexisting conditions.
I don't really worry about the 20% copay. Many individual policies require 20% up to a certain point, after which it covers things 100%. So for Unicare individual health, you have 20% copay from $1000 to $5000, but anything over $5000 is completely covered.
Here's a piece by a writer calling for an end to subsidies for health insurance deductions.
Putting the responsibility on individuals for health care can be a good thing. However, I wonder if consumers can be effective at making medical/financial decisions.
For example, insurance plans can cut corners in ways that don't seem transparent to individuals. They can write legal agreements in ways that benefit the company, not the individual. (Just look at credit card agreements).
We need better ways to certify an individual policy as meeting a standard and better information about how much medical services actually cost.
commented on 2/7/2006 For the record, I am leaving my job soon and facing many of the same quandaries. Please blog about which policy you chose (or email me privately).
I have to agree that dental insurance seems a little silly. Every year I run the numbers, and it never makes sense to get a premium dental care policy. A basic policy is adequate. (To be fair though, last year I had a crown, which costs a lot of money).
HSA's sound attractive from a free market point of view, but I can't remember what advantages they hold for individuals buying individual policies. (Over the last few years, they've become more flexible and consumer-friendly; have to look into again).
commented on 2/7/2006 anything over $5000 is completely covered.
Close, but not exactly . . .
You still have hidden provider charges that can bite you when they exceed the allowable charge under your policy.
And you are right about STM plans. Most will not allow you to renew if you have had any claims. You do start a new pre-ex with each renewal. And all pre-ex conditions are denied as long as the STM is in place.
They are good policies for the short run, but not advisable if you need coverage beyond 90 days.
As for your comments on transparency, the information is there for the consumer to review. Every state now requires a readable contract. The only problem is, the consumer rarely takes the time to do the right kind of research.
FWIW, few agents take the time either, and that is sad. But many of the agents who write individual health insurance have less than 3 years experience, only know about 1 or maybe 2 companies and even then just what they were taught by a manager that probably didn't know either, and only know a "pitch". They have no clue what will happen once the application gets to underwriting or which claims will be excluded when the policy is in force. All they know is you are a warm body who can put food on their table when you buy.
Robert, insurance is state specific. Without knowing which state you are in, it may be difficult to make a recommendation. What is available here in GA and works for my clients may not apply in your area. Blue for example is different in every state. And if you buy a Blue policy in GA then move to FL, you cannot take your policy with you.
commented on 2/7/2006 The short term policy isn't ideal, but in this case, it was necessary to avoid being without insurance altogether. So, the hassle needs to be compared to the hassle of being without, which is a MUCH bigger hassle should something go wrong. I wouldn't compare the short-term policy against regular insurance, but against not having any, which leaves *everything* as an uncovered pre-existing condition.
I agree wholeheartedly that we need to get health care out of the employment sphere completely. I don't believe that individuals will always make the best decisions, but that's always the case for a certain percentage of the population. However, that's already true for mortgage insurance, car insurance, life insurance, etc. Most people would feel really strange about having their employer involved in choosing their auto insurance (and even more if their speeding ticket jeapordized their job due to rising auto insurance costs).
I suspect that what we'll see eventually is a definition that looks something like Canada's critical care (the stuff that actually is state sponsored) being used to define what a "base" policy needs to be in this country. If you had the "base" policy defined, with extra coverage available, you could far more easiliy make this decision.
A lot of how this all falls out depends on how gullible Congress is. If the major banks can convince them to rewrite bankruptcy law based on scary anecdotes (people skipping out on credit card bills only to buy a boat the next week) instead of statistical reality (that medical bills represent the single biggest cause of bankruptcy), who knows what they'll believe from the insurance companies. After all, getting a check in the mail from Wells Fargo for $2000 with an attached 29% APR would have been outright illegal a few decades ago, but I still got one a while back. I should have framed that thing. Heck, most people accept that getting a $20 out of an ATM is worth a 10% surcharge.
Here's the summary table of what I ended up getting. The 0%'s are what I'm responsible for.
| Company |
|
| Plan Name | Options Blue |
| Plan Type | Indemnity |
| Estimated Monthly Cost |
|
| Deductible | $1,800 |
| Coinsurance | 0% |
| Out-of-Pocket Limit | $1,800 |
| Lifetime Maximum | 3 Million |
| HSA Eligible | YES |
| HSA Administrators | View Options |
| Online Physician Directory |
Physician's Directory |
| Primary Benefits | |
| Office Visit | 0% after deductible |
| Prescription Drugs | 0% after deductible |
| Periodic Health Exam | 0% after deductible |
| Lab/X-Ray | 0% after deductible |
| Periodic OB-GYN Exam | 0% after deductible |
| Maternity (Outpatient) | Prenatal care---0% deductible does not apply.
Delivery and post-delivery care---For the first 18 months of coverage: After you pay the deductible, benefits are limited to $500. Beginning with the 19th month of coverage: 0% after deductible |
| Maternity (Inpatient) | Prenatal care---0% deductible does not apply.
Delivery and post-delivery care---For the first 18 months of coverage: After you pay the deductible, benefits are limited to $500. Beginning with the 19th month of coverage: 0% after deductible |
| Emergency Room | 0% after deductible |
| Hospitalization | 0% after deductible |
| Other Benefits | |
| Outpatient Surgery | 0% after deductible |
| Well Baby Care | 0% deductible does not apply |
| Infertility | Not covered |
| Mental Health Office Visits | 0% after deductible |
| Mental Health Inpatient | 0% after deductible |
| Physical Therapy | 0% after deductible |
| Skilled Nursing | 0% after deductible |
| Home Health Care | 0% after deductible up to $25,000 a year |
| Chemical Dependency Inpatient | Optional Benefits |
| Chiropractic | 0% after deductible |
| Acupuncture | 0% after deductible |
| Optional Benefits (Dental, Maternity, Life Insurance, etc.) | Optional Benefit Quotes |
| Additional Information | |
| Will insurance company obtain and pay for medical records? | YES |
| eSign (electronic signature) |
NO |
| A.M. Best Rating | A as of 03/04/2004 |
commented on 2/7/2006 "I think you’re highlighting the issues with health insurance in general, independent of employer-sponsored or individual supported."
Exactly, Garrick. Conversations about health insurance and health care often tend to end up a dumping ground for everyone's frustrations with this whole combined industry.
Solving the national health care problem is a GIANT problem that I'm not equipped to solve. Unfortunately, I (and the rest of the country) are left facing a choice between some pretty stark options. After evaluating the choices available to me, I chose the policy I detailed. Is that the best policy in the nation? Absolutely not. Was it the best option for my circumstances? I believe so.
Bob, given the realities of health insurance, for an individual who HAS to buy their own and has to do so this year, what type of policy *should* they get? If PPO and Indemnity are both terrible, what's left? HMO? That strikes me as the worst possible option.
For self-employed people, it's a choice between buying insurance on the open market as an individual or going without. Given that choice, what's the best generic option?
commented on 2/7/2006 medical bills represent the single biggest cause of bankruptcy
Yes, and no.
Studies have shown that a medical emergency does, in many cases, lead to financial crisis, which in turn leads to bankruptcy. At least this was so prior to rewriting the bankruptcy laws.
But a closer look shows the average unpaid medical bills at around $13k . . . hardly an amount worth skating on especially when it impacts your credit, and in some cases ability to secure some forms of insurance and jobs. Many of those with unpaid bills had insurance. They simply failed to have adequate cash reserves and/or disability coverage.
As for the policy you bought (from BCBS of MN) the only thing that jumps out is as before . . . the fact it is an indemnity plan.
Being forced to cough up 30 - 40% of a $200 claim is one thing. Doing the same thing on a $40,000 claim is another.
Your policy is basically 100% OON coverage. Providers love that for their ability to charge whatever they want and you have no choice but to pay or be turned over to collections.
This is about all I can tell with the information you have provided. For more detail I would have to see the policy.
Actually the HSA with a PPO is the best option for limiting risk. That is, as long as there is full cover without limits on outpatient procedures, annual overall limits, or ridiculously high limits on OON charges.
For many, the HMO is a good option. Despite the "bad press" many HMO's get, I have quite a few clients with an HMO. For years I fought the idea of offering the HMO option to my clients but made a shift about 4 years ago.
Probably half my clients are with an HMO at this time and I have no complaints. No one has ever called about claims or service. No one has ever complained about the renewal. Not a single one has left to go to a PPO.
That amazes even me . . .
commented on 2/19/2006 [...] J Wynia has a good write up of choosing an individual healthcare plan. Tags: America(t) , Politics(t) 19 February 2006 Post Judgement [...]
commented on 10/23/2006 Hi,
I read your article and the responses to it. It is so true. I believe there is a tsunami coming in the health care industry. HSA's will become more requested.
I market a medical discount card with AmeriPlanUSA for $11.95 individual and $19.95 per family for dental, vision, prescription, and chiropractic or medical including the DVPC for $59.95 per month for the whole family up to 20 people in the household. I believe our company has an answer for the HSA high deductibles. It could be used in conjunction with the HSA and yet be able to get more for your money with the discount for fee service. I am interested in your feedback. Thanks
Lois
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commented on 2/18/2010 health insurance has gotten to a point where it is stupidly expensive and more is needed from government officials to help lower income families get health insurance at a fair price.