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Article provided by: National Association of Health Underwriters
What is individual health insurance?
Individual health insurance is coverage that a person buys
independently. It can be sold to a single individual, to a parent and dependent
children, or to a family. The majority of Americans get their health insurance
coverage through an employer or through a government program, but five percent
of the population purchases private health coverage on an individual basis.
Each state separately regulates how individual policies may be marketed and
sold.
How can I buy individual health insurance coverage?
In almost every state, individual health insurance coverage
can be purchased through licensed health insurance salespeople known as agents
or brokers. Independent agents and brokers sell insurance plans from many
companies, and they can help you find the coverage that best suits your
individual needs.
Agents and brokers also provide service on the policies they
have sold, and can help you process claims or with anything else you need
regarding your policy. The insurance companies for which agents and brokers
sell coverage pay them a commission for their work, so you will not be charged
a direct fee if you want to use the services of an agent or broker. You can
find agents and brokers who sell individual coverage via the Internet, or you
may prefer to consult with one in person.
How is individual insurance different from group insurance?
Individual health 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. Individual
consumers may be surprised to learn that some benefits that may be considered
“standard' in a group policy, like maternity coverage or substance-abuse
treatment, may not be included in an individual plan. 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.
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.
Individual health insurance companies are much more limited
than group insurance companies in their ability to spread risk, so the laws
concerning i ndividual health insurance are different in most states. 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.”
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.
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. 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
preexisting condition coverage but exclude coverage of that 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
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. Thirty-three states provide coverage to medically
uninsurable people through high-risk pools. Twelve states use other means of
providing uninsurable people with access to individual coverage (e.g.,
requiring that all individual health insurance companies issue individual
policies regardless of health status, coverage through a designated health
insurance company of last resort, etc.). There are five states that still have
no means of providing individual health insurance access to people with
catastrophic medical conditions. To find out what your state's options are for
medically uninsurable individuals, check out our Health Care Coverage Options
Database.
Since each state sets its own requirements for individual health insurance policies, how can I find out what the requirements are in my state?
To find out about each state's specific requirements
regarding individual health insurance policies, you can visit NAHU's Health
Care Coverage Options Database. The database also contains contact information
for the state regulators of individual health insurance policies to use if you
have questions or concerns.
Content copyright © 1998-2006 National Association of Health Underwriters. All rights reserved.
National Association of Health Underwriters
2000 North 14th Street, Suite 450
Arlington, VA 22201
703.276.0220 · fax 703.841.7797
NAHU
2000 N. 14th Street, Suite 450
Arlington, VA 22201
703-276-3800 · 703-841-7797
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