Warning about individual health insurance- it's not what it seems

Lots of people I know have individual health insurance, yet it's often misunderstood.

First off, in most states, you cannot get individual health insurance unless you're in good or even perfect health. This is well known. Many people believe however that once they've been accepted and so long as they continue to pay, that they're "covered" indefinitely. While this is technically true, the shocking reality is quite different as will be explained shortly.

Health insurance companies, like any other insurance company, do not like paying claims. However, unlike, for example, life insurance, when/if you get a serious illness, individual health insurance companies can as a matter of practice get rid of you, leaving you without any insurance at all. How?

When you buy an individual health policy you are put into a group under your policy's brand name. For example: "Healthcare XYZ Plan 2000". This plan will be sold for typically about 3 years and then it's closed. No new members can then enter.

Because your risk is shared with people of this group, as claims start to come in, the premium starts to rise. Those who are healthy start to leave because they can get the same coverage cheaper in another new health insurance plan. However, those who developed a serious illness or condition, cannot get a new individual health policy. They are trapped. Premiums in this closed group start to increase exponentially, as only sick people remain. More people leave, often because they cannot afford the higher premiums. This in turn just causes those who remain to have to pay even more. The plan goes into a "death spiral." The insurance company has in effect transferred all risk to an ever-smaller and sicker group. (Traditional employer group insurance doesn't work in this manner at all- but that's another subject.)

The process is repeated again and again. Keep in mind this not per se the insurance company's fault- the insurance regime is regulated by each state and the companies selling in a given market intensely compete with each other given the rules of the system. For a company not to force the "death spiral" means they'd be at a competitive disadvantage; they go out of business.

If you are self-employed and have individual health insurance, you may not realize that you are probably at serious, almost inevitable, jeopardy of losing your ability to get health insurance at some point in life- once you lose your "good health" status. Then you have almost no options, short of working for a tradition employer or purchasing a plan in your state's high-risk pool, if available- which normally costs more than a typical home mortgage.

I've no solutions- this is just a warning so that you know what individual health insurance, in fact, is (and isn't). These health plans are insurance plans for when you're healthy, and that's it.

See Georgetown University's information on health insurance:
http://www.healthinsuranceinfo.net/

Health insurance regulations are highly state-specific. In my state, individual health insurance has guaranteed renewability, and the state limits the amount insurers can surcharge due to a person's health condition.

OP: good article. Laws vary by state, but your points are well-taken. You correctly observed that health insurers regularly keep "reshuffling the deck chairs" by frequently re-branding certain types of insurance coverage groups.

It's a truly barbaric system focused on extracting maximum revenue out of sick individuals. It will probably take another generation before Congress repeals the McCarran-Ferguson Act of 1945 which has prevented Uncle Sam from imposing nationwide standards on health insurance sales and coverage practices.

Another argument for a single-payer basic plan. Since private companies are forced to compete on the basis of cherry-picking to retain their profitability, problems like these are inevitable.

It's also crazy that a person should have to become an expert on their state's insurance law in order to figure out what risks they run getting policy type A instead of type B.

Are there any good pieces readily available that discuss OP's issue in more detail? I am self-employed, and have an individual HDHP, and would be curious to read more.

definitely a stacked deck...

Bad Faith: Fraud in the Insurance Industry

EricGo said: DaveHanson said: Another argument for a single-payer basic plan.Insurance plans encourage abrogation of personal responsibility as a rule, and especially so in healthcare. Even catastrophic illness that is presumably the domain of HD insurance is usually a culmination or result of poor choices.


What a bunch of libertarian crap. Will you still say this when YOUR spouse or kid gets seriously sick?

The day is soon coming when a simple test will determine your genetic probability of getting cancer, parkinson's, ahlzeimers, etc.
Insurance companies will want to cherry pick otherwise healthy people, based on their genetic profile. That's when pressure will grow finally for some kind of national health insurance--when healthy, middle class, white people find themselves uninsurable.

revheck, you raise a good point, but I don't think you're interpreting EricGo fairly.

As I read him, he's just making the sensible point that insurance ought to give us financial incentives to taking care of ourselves, so that our poor health decisions aren't just fobbed off on third parties.

There is no reason this need be incompatible with a single payer system. Indeed, I think it would make doing so easier, and I support both EricGo's point here and a (carefully designed) single payer system.

I'll let the data speak for themselves.

Published on Monday, February 23, 2004 by the Los Angeles Times

In Health, Canada Tops US
Our neighbors to the north live longer and pay less for care. The reasons why are being debated, but some cite the gap between rich and poor in the US
by Judy Foreman


Want a health tip? Move to Canada.

An impressive array of data shows that Canadians live longer, healthier lives than we do. What's more, they pay roughly half as much per capita as we do ($2,163 versus $4,887 in 2001) for the privilege.


The summary of the evidence has to be that national health insurance has improved the health of Canadians and is responsible for some of the longer life expectancy.

Dr. Steffie Woolhandler, an associate professor at Harvard Medical School
Exactly why Canadians fare better is the subject of considerable academic debate. Some policy experts say it's Canada's single-payer, universal health coverage system. Some think it's because our neighbors to the north use fewer illegal drugs and shoot each other less often with guns (though they smoke and drink with gusto, albeit somewhat less than Americans).

Still others think Canadians are healthier because their medical system is tilted more toward primary care doctors and less toward specialists. And some believe it's something more fundamental: a smaller gap between rich and poor.

Perhaps it's all of the above. But there's no arguing the basics.

"By all measures, Canadians' health is better," says Dr. Barbara Starfield, a university distinguished professor at Johns Hopkins Medical Institutions. Canadians "do better on a whole variety of health outcomes," she says, including life expectancy at various ages.

According to a World Health Organization report published in 2003, life expectancy at birth in Canada is 79.8 years, versus 77.3 in the U.S. (Japan's is 81.9.)

"There isn't a single measure in which the U.S. excels in the health arena," says Dr. Stephen Bezruchka, a senior lecturer in the School of Public Health at the University of Washington in Seattle. "We spend half of the world's healthcare bill and we are less healthy than all the other rich countries."

"Fifty-five years ago, we were one of the healthiest countries in the world," Bezruchka continues. "What changed? We have increased the gap between rich and poor. Nothing determines the health of a population [more] than the gap between rich and poor."

Gerald Kominski, associate director of the UCLA Center for Health Policy Research, puts the Canadian comparison this way: "Are they richer? No. Are they doing a better job at the lower end of the income distribution? For lower-income individuals, they are doing a better job."

At a meeting last fall of the American Public Health Assn., Dr. Clyde Hertzman, associate director of the Centre for Health Services and Policy Research at the University of British Columbia in Vancouver, analyzed data showing that Canadian women outlive American women by two years and men, by 2 1/2 years.

During the last quarter-century, he says, all income groups in Canada also showed gains in life expectancy. During much the same period in the U.S., death rates widened between America's rich and poor, according to a 2002 study in the International Journal of Epidemiology by American and Australian researchers.

Infant mortality rates also show striking differences between the U.S. and Canada.

To counter the argument that racial differences play a major role, Hertzman compared infant mortality for all Canadians with that for white Americans between 1970 and 1998. The white U.S. infant mortality rate was roughly six deaths per 1,000 babies, compared with slightly more than five for Canadians.

Maternal mortality shows a substantial gap as well. According to the Paris-based Organisation for Economic Co-operation and Development (OECD), a 30-nation think tank, there were 3.4 maternal deaths for every 100,000 births among Canadians, compared with 9.8 deaths per 100,000 Americans.

And more than half of Canadians with severe mental disorders received treatment, compared with little more than a third of Americans, according to the May-June 2003 issue of Health Affairs.

"The summary of the evidence has to be that national health insurance has improved the health of Canadians and is responsible for some of the longer life expectancy," says Dr. Steffie Woolhandler, an associate professor at Harvard Medical School and staunch advocate of a single-payer system.

Of course, some causes of death, such as homicide, wouldn't be much affected by having a single payer system. And the U.S. has "the highest homicide rate of all the rich countries," says Bezruchka.

"Other things might be differences in seat belt usage," adds Robert Blendon, a professor of health policy and political analysis at the Harvard School of Public Health. "We are also disproportionate consumers of illegal drugs, much more than Canada, so it's cultural."

The health of Americans would be better with universal healthcare, he says.

"But there are some things that a single-payer system wouldn't fix — but which would leave one country looking healthier in the statistics."

In some respects, the healthcare system is "the tail on the dog," says Dr. Arnie Epstein, chairman of the department of health policy and medicine at the Harvard School of Public Health.

"It's other aspects of the social fabric of different countries that seem to have a major impact on how long people live," he says.

In the U.S., African Americans and Latinos "face problems of housing, stress and low income, which have nothing to do with a single-payer system." Canada has a large number of Asian immigrants, he says, but they, like Asian immigrants in the U.S., tend to do well on healthcare measures.

The bottom line is that Canada is doing something right, even if "the reasons are not totally understood," says Kominski of UCLA.

I'm having trouble understanding what you're even trying to say: "Your tabloid views of
genetic testing harming the great white whale betray you." huh? what?


Can you put together a coherent argument based on any data, rather than name calling and repeating yourself?

revheck said: Can you put together a coherent argument based on any data, ?Yawn.

I could, but I doubt you would listen. But go ahead and prove me wrong. Google up the leading ICD 9 codes to account for 90% of the mortality in the fourth through seventh decades of life, and then ask any decent physician to identify for you those that are at least 90% caused by lifestyle, 75% lifestyle, 50% lifestyle, and at least 25% lifestyle. Then compute a weighted average.

SUCKISSTAPLES said: vampyr said:
I've no solutions- this is just a warning so that you know what individual health insurance, in fact, is (and isn't). These health plans are insurance plans for when you're healthy, and that's it.

Ive never heard of this "death spiral" before, but it makes perfect sense. Green for you, OP.

Might one suggestion /solution for people buying their own, is to form their own business and get their OWN business health coverage? I think some insurers accept companies with as few as 2 employees.

Small business group coverage isn't really a solution because the premium directly corresponds to the health and the claims activity of the group members. If the two group members are healthy, then they can get a very low rate- otherwise, it'll be impossibly high. The reason why many small businesses don't offer health insurance is that they simply don't have a sustainable mixture of healthy and unhealthy members which leads to affordable rates.

Traditional large-employer group plans economically work because, due the size of the group, the vast majority of employees have no health problems; only a small minority do. This allows risk to be effectively spread, lowering the per-capita costs. Generally, the larger the group, the lower costs, with some variation for business type. (E.g., a company of oil field workers will have more longterm health problems than an architecture company.)

--

I believe the single-payer model is not the solution for the USA. People should have an incentive to stay healthy and to use the medical system only when it's reasonable (not for every sniffle). In addition, the efficiencies and cost-savings of the private market (for-profit) are better in the long run. This is a big topic.. but briefly.. we should have a federalized system with perhaps three types of universal plans. Private insurance companies will sell and administer the plans- this will keep a natural check on fraud. Everyone will be required to have health insurance; the "poor" will get it subsidized by taxes, perhaps on junk food. The system will be fully transportable and no longer tied to a state or to an employer. I think the HSA model (consumer-driven) is the way to go- those who do not exhaust their HSA money get a part of it back at the end of the year.

Here are some problems that would be solved:
1. Health insurance is no longer tied to a job or to a state. Many people are "stuck" in a job because of the health insurance issue. This is bad for our economy, as many people are afraid to take risks- such as starting a business.

2. Everyone can get health insurance, regardless medical status. But everyone who has income must "pay" into it as well. No more monied freeloaders, either. "Risk" is truly spread across everyone in the country.

3. The endlessly complex and expensive state-by-state rules all go away.

4. Consumer-driven HSA-model encourages people to guard their health, shop by price, and use the system more moderately. New rules requiring 100% transparency for medical fees and costs must be instituted. Information technology is crying out to help in this area!

5. Partial funding by taxes from "bad" foods will help subsidize the system and discourage their consumption. Think of this is a new sin-tax against obesity; at least it's a start.

6. Further legal reforms. Medical malpractice needs to be replaced by an arbitration system.


Of course.. making all this happen with the zillions of special interests that exist.. it almost sounds impossible.

vampyr said: Here are some problems that would be solved:
5. Partial funding by taxes from "bad" foods will help subsidize the system and discourage their consumption. Think of this is a new sin-tax against obesity; at least it's a start.So in addition to taxes on cigarettes and alcohol, there should be "sin taxes" on butter, lard, stick margarine (trans fats), cookies, pie, cakes, candy, fried foods.... Think the voters would go for it?

Hope this isn’t too off-topic, but to me it seems relevant.

Regarding Canada’s healthcare system...based on the very recent experience of two close relatives living in Canada, and with all due respect, the Canadian healthcare systems is not all it’s cracked up to be. It’s not a panacea for our own health care problems. My poor uncle and cousin had to wait too long for major surgical procedures. This prolonged their hospital stays considerably and endangered their lives. And their follow up care was not up to our own American standards. The Canadian system too often provides less than acceptable medical care. Granted, it’s considered “free” (which of course it’s definitely NOT) but too often lifesaving procedures are incorrectly prioritized and/or dangerously delayed for one reason or another.

Yes...my opinions are based on anecdotal evidence. So what. After hearing similar stories from quite a few Canadian relatives and friends a picture begins to develop. I’ve been told by a teaching physician (whom I have good reason to respect) that the Israeli healthcare system is the only good example of socialized medicine. However, I have no idea how accurate his contention is. Just bringing it up in case someone else has more information.

I’ve been self-employed for many years and wouldn’t even consider getting individual health insurance. For the good reasons already discussed here. My best deal (NY)–for as long as I can remember--has been the Blue Cross/Blue Shield/Blue Choice system provided by a local Chamber of Commerce group, etc. NY state also has a very good low-income health insurance plan. Unfortunately (or fortunately, depending on your point of view) I don’t qualify, but would bet there are thousands who do qualify but who have not been made aware of this option.

The obscenely high cost of non-employer provided health insurance is a national disgrace.

Susannah said: It's usually possible to find a trade organization or other type of club that offers group insurance. Most of these are regulated by HIPAA, and while it's more expensive to have this type of insurance while you are young and healthy, you do avoid the "death spiral" described here. Since you never know when you're going to get really sick, I think it's best to just always stay with insurance regulated by HIPAA (group insurance at big employers is) if at all possible, to avoid all of the pitfalls associated with private insurance. IEEE (Institute of Electrical and Electronics Engineers) offers group insurance to its members who have been members 3 years or more. I make my husband keep his membership current in case we don't have jobs and need to go on their plans.

I'm not aware of any trade or professional associations other than IEEE that have true group (HIPAA) health insurance; most just source people to individual health plans. ACM use to have group insurance, but now they just direct people to ACM-branded individual health plans, which is not a real solution.

Anyone who has a degree in engineering or science should definitely be a member of IEEE, just for the insurance option, if needed someday!

Do any readers know of specific true group insurance similar to IEEE?

NY may be a comparatively safe state for individual health insurance plans, but I've never seen one worth buying. I'd defintely be interested in learning more, however. I gave up looking for individual plans a couple of years ago after so many dead ends. Like many others, I'm interested mainly in catastrophic health coverage and would accept a high deductible, or whatever the health insurance term is.

Unfortunately, sky high medical care costs make self-insuring virtually impossible.

I know this has been mentioned before, but people could always look for employers that offer insurance for part-time employment. I have a contract job that pays me way more by not taking benefits $36/hr vs. $57/hr. For me it was a no-brainer. I just had my wife work part time for the state, to make up for my lack of taking insurance.

MVV, I perused the company you linked to. I have to first admit a strong bias against religious organizations in general, christian in particular, and most of all any company that highlights testimonials in the marketing pitch.

Anyway, from their disclosure required by some seven states across the US (my bolding): "This publication is not issued by an insurance company nor is it offered through an insurance company. This publication does not guarantee or promise that your medical bills will be published or assigned to others for payment. Whether anyone chooses to pay your medical bills will be totally voluntary. This publication should never be considered a substitute for an insurance policy. Whether you receive any payments for medical expenses and whether or not this publication continues to operate, you are always liable for any unpaid bills."I would also empahasize that if this company has not negotiated *substantial* discounts of the list cost of medical services in your area where you want to go, it's utility at best is poor.

EricGo said: Single payor still strike me as a spreading risk device; and unless it is very stricly limited, I think will fail over time for the reasons I outlined above. I have great respect for your views on this issues, EricGo,--thanks for addressing my post. I'm puzzled as to why you think "single payer" is more likely to fail than other forms of insurance...? Surely it does "risk spread", but isn't that precisely the point of insurance...?

Is your concern that it doesn't offer incentives to take care of yourself? If so, couldn't that be addressed through mandatory co-pays and the like? Is this what you mean by a "significant co-insurance component"?Drawing rigid lines where basic stops is a nightmare, by the way. I'd hate to set something up that only benefits lawyers.A fair point.

Back when it was introduced in the late 80s-early 90s, I followed Oregon's plan pretty closely. I wonder what you think of their experience as a model for carving out where "basic" should stop. They certainly spent less per person after changing their Medicaid model from one that insured fewer people (those WAY below the federal poverty line) to one which covered fewer services. And interestingly, their system came to enjoy broad political support by the end of the 90s. There is an interesting piece on their experience here. This may not be the right thread, but I look forward to reading your ideas on this.I certainly don't want to take this over...vampyr has done an excellent job highlighting an important point. If this discussion develops in a way that brings us much off topic, I'll try to move it elsewhere.

vampyr said, I believe the single-payer model is not the solution for the USA. People should have an incentive to stay healthy and to use the medical system only when it's reasonable (not for every sniffle).Why would a single payer model not have such incentives? I think it should, and there certainly is no reason it couldn't...? In addition, the efficiencies and cost-savings of the private market (for-profit) are better in the long run.Actually, no. We spend 25% of every health care dollar on private market overhead (marketing, administration, attempts to "cherry pick", and the like. That's not to say that Medicare is an ideal alternative either. But the huge overhead expense, mind-numbing complexity of billing/paperwork/eligibility standards, and very spotty coverage that the private system provides does us no favors. we should have a federalized system with perhaps three types of universal plans. Private insurance companies will sell and administer the plans- this will keep a natural check on fraud.Why a "natural check on fraud"? With an additional layer of middlemen, the fraud potential increases... Also, with just three types of universal plans, what's the point of having private folks "sell and administer" them? That's more marketing and overhead expense than such a simplified system would need (and I'm with you as far as simplifying the system). Everyone will be required to have health insurance; the "poor" will get it subsidized by taxes, perhaps on junk food. The system will be fully transportable and no longer tied to a state or to an employer.That all sounds good, and it would be a huge step forward.

Unfortunately, the IEEE is no longer accepting new applications for its Comprehensive Health Care Plan.

LOL EricGo. the quotes are indeed a pain. Incentives to stay healthy aside for the moment, my main thought is that cherry picking such as that practiced in the private arena *does* act as a brake to complete disregard for personal responsibility. A single payor (and presumably mandatory insurance) would not have this.Gotcha--I see. So to the extent that cherry picking promotes responsibilty, it's a feature, not a bug.

I find it very, very hard to believe that cherry picking would actually motivate people to live healthier lifestyles than they would otherwise. At a minimum, people would (a) have to draw a causal link between their own behaviors and the resultant insurance company behaviors, and (b) have that link be necessary and sufficient for them to alter said behaviors. I just don't find either (a) or (b) very likely.

OTOH, one reason people hate and mistrust insurance companies is because when they develop illness through no fault of their own, they get shafted ASAP, as per the OP's point. I think this is one reason people would be more likely to think, "that's just the insurance company screwing me" than, "I should change my lifestyle habits so they won't screw me." My unproven suspicion is that a level charge in premiums and co-pays will not be be enough to encourage healthy lifestyles; I think expensive care will have to cost the patient more -- at least up to a pretty high ceiling. Co-insurance does this, by making the patient pay a percentage of the bill.

I am associating mandatory participation and flat fee based care with the 'single payor' system, because in all the countries I am aware of that have national health systems, those social structures are included.Again, thanks for clarifying.

I think you raise a good point here. I'd like to see a single payer system provide some free preventative care and wellness benefits, like many HDH plans do. But beyond that, co-insurance in many cases would be a good idea.

If a single-payer program did this, it would draw a much clearer link, I think, between unhealthy behavior and out-of-pocket costs. As it stands, with so many conflicting private plans--many which also charge flat fees--I don't think that message gets through.
Lastly, the amount of beauracracy and systemic stupidity that medicare has spawned is a sight to behold. I find the notion of the government being the sole vendor, and therefore regulator,payor/judge and jury all rolled into one a sobering thought. I'd like to hear more about the ways in which you think medicare is broken. I don't know nearly as much about its details as I do about SS, but my impression has indeed been that it isn't working as well.

Shel said: The keyword here is

afford

period.

That was my whole point. The so-called "equitable" and "fair" socialized health system in that country not only provides inferior health care, it is still inequitable. No amount of effort by any government in the history of the world has ever changed the fact that those with more money get better services.

Shel said: For someone who can pay whatever medical cost out of their own pocket, why do they need insurance to begin with?

I think what many people fail to see is how health costs became so out of control. Have you ever received an Explanation of Benefits from your insurer for a lab test that was billed at $300-400 but "adjusted" by the insurance company to around $30 or less?

The reason for this is that insurance companies' "allowable charges" are often based on a percentage of the provider's cash rate. As the reimbursement rate declines steadily, providers jack up their cash rates to ensure they make a profit. That's why if you are uninsured you can go in for the simplest and most routine of medical procedures and receive a ridiculous bill for $2000. Most likely the reimbursement rate is somewhere around 5-20% of the cash rate.

What ends up happening is it becomes outlandishly expensive to self-insure or even indemnity-insure (catastrophe only). I am a young adult male, with no real health concerns, and as such I am a prime example of someone who should have high-deductible insurance and pay for everything else out of pocket. I simply can't afford to do that, however, as even the most insignificant illnesses or injuries could cost $1-10k or more.

The net result is two classes are created: those that are insured under very generous employer plans (in which the insurance companies pay greatly deflated rates) and those that are not insured and can't afford any health care whatsoever.

Doctors are not the ones at fault here, as they are often given a "choice" by the hospitals in which they can either (1) accept the insurance companies' "proposed" allowable charges no questions asked, or (2) show themselves the door.

The hospitals, too, are not the ones at fault, as they in turn are given a "choice" by the insurance companies to either force their doctors to accept the rates or give up all of the insurer's customers. How can a hospital stay in business if they don't accept Anthem? Or United Healthcare? Or Kaiser?

As you can see, it is really no choice at all.

This is why I believe the solution to this health care crisis does require some government involvement, but in terms of regulation, not sponsorship.

Edit: typo