Health Insurance Options That Squeeze Individuals
25 01 08 - 11:51
Many people have no choice but to buy healthcare coverage on their own, despite its downsides
By Michelle Andrews
Posted January 24, 2008
When it comes to health insurance, one is definitely the loneliest number. Buying a policy on your own instead of through your employer often means getting skimpier benefits and paying higher costs, if you're approved at all. But as employers pull back on coverage, either canceling policies outright or increasing their employees' share of the costs, more people are turning to individually purchased insurance, despite its generally lousy track record on protecting and providing for patients when they're sick. Recent rulings may help curb some of the worst industry practices. But this type of insurance is not a good choice for the faint of heart.
Unfortunately, many individuals and small-business owners don't have a choice. Katherine and Marshall Styler make their living marketing instrumental music composed and performed by Marshall, a pianist. In 1998, they bought an American National Insurance Co. of Texas policy for themselves and their two kids, now 15 and 18. (They bought their plan through the National Business Association, a way for individuals to get access to group rates. Association policies share many features with individual policies.) Initially, a $780-a-month premium covered the whole family. Then Katherine, now 51, got diagnosed with breast cancer. Last November, as she continued to undergo periodic chemotherapy for cancer that has spread to her sternum and rib cage, the Stylers learned that the premium on their high-deductible policy would increase to about $1,700 a month, a 30 percent jump over the prior year. And it no longer even covers their kids, whom they moved to a separate policy last year.
The chemo makes it impossible for Katherine to travel from their home in Austin to meet promoters who might be interested in Marshall's music, and their business is suffering as a result. She estimates they pay $30,000 a year for premiums, deductibles, and uncovered medical expenses. With $200,000 in credit card debt, they're robbing Peter to pay Paul, she says, and are considering selling their home and declaring bankruptcy. "I feel myself losing my drive," says Katherine. "I love life, but I can't stand doing this to my family."
The Stylers are lucky in one sense: At least they already had insurance when Katherine got sick. Under the federal law known as HIPAA, their insurer can't cancel their policy now that she's ill and expensive to cover. But people with pre-existing medical conditions like cancer routinely get turned down when they try to buy insurance on their own, and an insurer could have—and almost certainly would have—refused to cover the Stylers if Katherine had been sick when they applied. Unfortunately, the law offers them no protection against premium increases. The Stylers' medical claims didn't prompt the premium increases, according to their insurer. "As a group policy, the rates are identical to everyone else in the same category," says Steve Schouweiler, who heads up American National's health insurance business. "There's no individual rating based on medical history." (Information about coverage rules in your state is available at healthinsuranceinfo.net.)
Thirty-four states offer special coverage through "high-risk insurance pools" that are supposed to act as safety nets for people like the Stylers who can't find affordable coverage or, in some cases, any coverage at all because of illness. "High-risk pools are just one of many things that can be done to lower the number of uninsured," says Wayne Nelson, president of Communicating for America, a small-business advocacy group that tracks high-risk pools. But with premiums that can be twice the average cost of an individual policy, that coverage is still out of reach for many people. In the Stylers' case, the premium for the high-risk pool would have been no cheaper than the private plan rate. Even more problematic, state high-risk pools generally refuse to cover pre-existing conditions for anywhere from six months to a year. "This isn't a silver bullet," says Nelson.
With 47 million uninsured, healthcare reform is a top priority for voters in the upcoming presidential election. In 2006, roughly 15 million others, about 5 percent of all people under 65, held individually purchased policies, according to the Kaiser Family Foundation. Some free-market Republicans would like to expand their numbers significantly, encouraging people to buy insurance on their own rather than through an employer. But as the market is currently structured, many older, sicker people would get turned down, say experts. "The system isn't ready to handle it at all," says Paul Ginsburg, president of the Center for Studying Health System Change, a research organization.
More offerings. Insurers are making some effort to expand the market for individual policies, taking particular aim at young, healthy people and early retirees who aren't yet eligible for Medicare. Some plans offer stripped-down benefits: The Tonik "Thrill Seeker" plan from WellPoint, for example, covers just four doctor visits a year and has a $5,000 deductible. At the other end of the spectrum, Humana's Portrait plan provides unlimited visits to non-specialists for a $35 copayment, and the deductible for other services can be as low as $1,000. "It's more like what early retirees might be used to having under their regular group plan," says Steve DeRaleau, chief operating officer of Humana's individual products market.
Putting lipstick on a pig doesn't make it any less smelly, consumer advocates say. One practice that stinks, they argue, is insurers retroactively canceling an individual policy because the member failed to accurately report his or her medical history on the application. The industry is currently on the hot seat in California, where, in December, a state appeals court ruled that insurers can't cancel members' insurance over an inaccurate medical history unless a member has actually lied; the misrepresentation must be willful, not just a mistake. The court also found that insurers have to make an effort to research an applicant's health history upfront, before issuing a policy. In other words, they can't wait until someone racks up hefty bills and then decide to examine the application for errors that could justify canceling the policy. Noting that the closely watched case may open the door for other lawsuits nationwide, Bryan Liang, executive director of the Institute of Health Law Studies at California Western School of Law in San Diego, says, "This is the insurers' worst nightmare."
If the courts had taken this stance earlier, it might have helped Christy Annett, whose insurer canceled her policy last year. Annett, 29, was diagnosed with acute myelogenous leukemia in 1995. When she sought insurance in 2006, the application asked whether she'd been diagnosed, treated, or followed up for cancer in the previous 10 years. She says she explained her situation to the insurer's customer service representative, including the fact that she'd been in remission for 11 years but continued to have blood work done every three months to make sure the cancer hadn't returned. No problem, she says the representative told her. That's considered preventive care, not treatment. (Annett declined to publicly name her insurer on the advice of her attorney.)
But last winter, when Annett developed another blood disorder and made a claim for a $4,000 shot to boost her red blood cell count, her insurer refused to pay. In June 2007, the company canceled her policy, claiming she misrepresented herself on her application. The quarterly blood draws were cancer treatment, she says the company told her. After losing two appeals, Annett, who lives in Las Vegas, has no insurance and an estimated $50,000 in medical bills. The Patient Advocate Foundation, an assistance and advocacy group, found a cancer center that agreed to give Annett a necessary bone marrow transplant free of charge. "There's so much money to be made by canceling people," she says of her experience. "I'm just a number to them." There's no way to guarantee a win in a numbers game, but you can improve your odds. If you're considering buying a policy on your own, read it carefully and make sure you understand what it does and doesn't cover (see "How to Pick an Insurance Plan You Can Afford"). And when you fill out an application, be open and honest and indicate that you're happy to provide any additional information. "Then," says Liang, "you're on solid legal ground."