Article

Herald-Sun, The (Durham, NC) - Used with permission of The Herald-Sun.

March 11, 2001

Health insurance search can leave individuals sick

Policy seekers who smoke or have a history of illness often find it harder and more expensive to get accepted

When Nick Long and his wife, Regina, decided to move their family from Florida to Hillsborough, it meant leaving behind Regina's high-level banking job and its rich health insurance benefits.

Those benefits had been there for Long, 53, when he suffered two heart attacks and needed a triple bypass surgery about four years ago. The coverage was there again when he later developed cancer and needed costly chemotherapy treatments.

Long, who worked as a real estate developer before his illnesses, knew that his medical history would make it difficult, not to mention expensive, to find a new health plan that would accept him.

"I talked to a few [health insurance] people and everyone just laughed when I mentioned my health history," said Long, who had coverage through COBRA, a federal program that enabled the family to purchase health insurance at their own expense for up to 18 months through Regina's employer plan.

Then the Long! s met Dianne Lawton, a health insurance broker with John F. Sipp & Associates, an independent firm that serves clients in Durham and Orange counties. Lawton told Nick Long he could get coverage through a federal program that allows people who have exhausted COBRA to purchase a guaranteed-issue policy.

The price tag, however, was steep: $700 a month for a policy that covers only Long. Regina Long and the couple's 6-year-old son, Noah, who are both in good health, opted for a $310-a-month family policy, bringing the family's monthly health insurance bill to just over $1,000.

Still, the Longs consider themselves lucky.

"No one else would take me, so this was like a miracle," Nick Long said. "We are fortunate that at this time in our lives we can afford to pay for it. But the cost is outrageous. For many families, this would not have been a real option."

Long's health history made his case unusual and required a special solution. The process that! identified him as a high-risk, high-cost patient, however, is everyda y for anyone who purchases health insurance on the individual market.

Underwriting and you

Anyone who wants to buy coverage - as opposed to getting coverage through an employer-sponsored plan - must go through a screening process known as medical underwriting. Stated simply, it's the process the insurance company goes through to estimate how much a person is likely to cost in medical claims in relation to the amount of money he or she pays in premiums.

"The insurance company is trying to assess the risk a person presents and then charge a premium that will allow [the insurer] to cover medical claims, pay administrative costs and generate a profit," said John Roos, who oversees sales and marketing for Blue Cross and Blue Shield of North Carolina.

Blue Cross is the state's largest insurer of individuals, with about 300,000 policyholders. As many as 1 million people purchase coverage on the individual market statewide, according to industry estimates! .

The rules are different for those fortunate enough to have employer-sponsored benefits.

In employer-sponsored health insurance plans, workers are underwritten as a pool. While some individuals in the group may be high-risk, sick and expensive to care for, the insurance company banks on the probability that many more people in the group will be healthy and cheap. What the insurer loses on the sick, it makes up on the premiums paid in by the hale and hearty. As such, medical review isn't required.

Single individuals or families, however, are judged independently.

If the person or family is healthy, they can sail through the process and often find a reasonably priced plan.

Jeremiah Owen, 23, recently snapped up a $112-a-month Blue Cross policy after going without health coverage for more than a year.

"It's just something I feel like I need to have," said Owen, who is launching a house painting business in the Triangle.

"It's g! ood to get it now, when you're healthy," Lawton advised Owen when the two met recently to discuss his options.

But if screening determines that an individual's medical costs could potentially outweigh the amount the individual pays in premiums, it can mean outright rejection or substantially inflated rates.

Anyone who has had a serious illness such as cancer, heart disease, diabetes or clinical depression within five years of applying for individual coverage is likely to land in the "deny" pile. Obesity - each company has its own definition, complete with height-to-weight ratio tables - is another common reason for denial, as it is considered a predictor of serious and costly-to-treat health problems such as hypertension, heart disease, stroke and diabetes.

Illnesses judged as less serious, from seasonal allergies and tension headaches to back spasms, can raise rates by 30 to 75 percent above the base rate, sometimes more, said John Sipp, who said about half his business comes from individual policy sales.

Up close ! and personal

Health insurance applications typically require applicants to complete detailed medical histories and pepper them with health questions that get personal.

Women, for example, are apt to be asked the date of their last menstrual period. It's one way of telling if the woman may be pregnant - a "pre-existing condition" that automatically renders a woman uninsurable in the eyes of insurance companies.

It's not the costs associated with the pregnancy and birth that raise the red flag, Sipp said. It's the fact that insurance laws allow newborn babies to be automatically covered under a parent's insurance policy.

"If a carrier accepts a pregnant woman, they take the risk that the baby will be born with a heart problem or defect of some kind and they'll end up paying million dollar medical bills," he said.

Lawton, the broker who sold the Longs their policies, said she recently had to turn away a family of four because the woman was pr! egnant with her third child.

The contents of applicants' medici ne cabinets also come under review. A few months' worth of the popular allergy drug Claritin, a few tubes of prescription acne medication - or substitute any expensive brand-name medication - generally result in an automatic boost in rates.

Smokers face obstacles, too. The habit usually results in an automatic "rate-up" of 30 percent or so.

Insurers have to screen applicants, the industry argues, in order to keep rates reasonable.

The argument: If high-risk individuals were welcomed in unchecked, claims would go up, which would inevitably drive rates up. Healthy people who rarely draw benefits would dump their coverage because they wouldn't see good value, while sick people would flock to pick up coverage. The phenomenon is known in insurance parlance as the "death spiral."

Indeed, prices have skyrocketed in those states, such as New Jersey, where insurers must accept people regardless of health status.

To avoid price hikes elsewhere, indiv! iduals identified as risky must pay more so that the system can cover claims when the odds catch up.

In practice, though, the process can price many individuals out of the market and into the ranks of the uninsured. Those flagged as "uninsurable" have it even worse: they can't buy insurance at any price.

Sipp's advice for those folks?

"Find a job that offers health insurance and hang onto it," he said.

Shopping for health insurance?

Most experts advise going through a licensed independent insurance broker who works with several health insurance plans.

Some things to consider when selecting an insurance agent:

  • Does the agent specialize in health insurance? Health coverage is a complex area that can confuse even experts, so experience counts. Check for credentials such as R.E.B.C. (Registered Employee Benefits Counselor) or R.H.U. (Registered Health Underwriter). The titles indicate that the agent has completed specialized t! raining in health insurance.
  • Does the agent write a lot of i ndividual policies? The rules for group health insurance and individual coverage are very different. An agent who handles many individual clients will have seen a lot of different scenarios and may be able to help find creative solutions to fit special circumstances.
  • How many companies does the agency work with? An agent who contracts to represent a single agency or works with only a few companies isn't providing customers with a full range of available options.

Source: National Health Underwriters Association