Should individual health insurance policies be underwritten? Is that fair?

Like home owners, life, and auto insurance; premiums for individual private health insurance plans in most states are based on risk. That’s what insurance does.

I live in a rural area in a house with wood shake shingles. My home owner’s insurance is more expensive than someone who lives in town near the fire house and has an asphalt roof. Life insurance is more expensive for my 84 year old father with a heart issue than it is for me. He was wise to buy a life insurance policy when he was younger before he developed the condition or he may have been denied coverage.  

Health insurance rates on new private individual policies are based on risk to be fair to all. If you are young and healthy, your rates reflect that. They will increase slightly each year since you become a greater risk as you age. In the KC area the premium for an HSA qualified plan for a healthy male age 28 can be around $50 per month. A healthy 63 year old female with a different carrier but same policy pays $169.

When you are younger, you make a lower salary and have a lower premium. When you’re older, you make more salary and can afford to pay a higher premium. This only makes sense.

What about health issues and pre-existing conditions?

Here are common myths about most individual policies:
MYTH (1) If you develop a severe health issue or have lots of claims, your rates will go through the roof or your coverage will be dropped.

FACT:Once a person is accepted for coverage, the carrier cannot drop you from coverage nor can they increase your rates due to your personal claims. The unhealthy are not singled out, but instead, all risk-rated increases are spread across the large pool of the insured in that state who have those plans with that carrier.

 MYTH (2) If your children are born with health issues, they will be denied coverage.
FACT: By most state laws, no matter the health issue of a newborn child, she can be added at standard rates to a parents’ policy within the first 31 days of her life. With most carriers it is as easy as calling them to report the child’s birthday and name.  

MYTH (3) When your child is too old to stay on your policy, she will be denied a personal policy if she has a health issue.

FACT:With most policies, regardless of health issues, when children are no longer eligible to be covered by the parents’ plan, they are guaranteed to continue the same coverage onto their own personal plan. So once you are covered by an insurance policy, you can build a ladder of insurance for your family members and they for their children.

MYTH(4) I am getting cheated if I have to buy my own health insurance because my employer should provide it.

FACT: If your employer offers a group plan, his portion of your premium is actually your compensation dollars that he controls. Some innovative, small business employers have taken themselves out of the insurance business. They entice employees by offering higher salaries to allow employees more income to be able to purchase their own plans from the broad choice currently available in the private individual market. Some encourage consumer driven health care by offering to put funds into an employee’s health savings account (HSA) if he chooses a qualified health plan. A growing number of those employers will submit the premium to the carrier through a “list bill” giving the employee the convenience of payroll deduction. A few reimburse a portion of the premium through a health reimbursement arrangement (HRA).
Message of this post: consider the security of an individual policy while you are healthy enough to qualify. Choose a high deductible, low premium plan and save up funds in your HSA to use for later when you are at greater risk for an expensive claim.

Real health care reform that could make individual plans even more attractive:
1) Equalize the  tax treatment of premiums. Current tax laws favor employer-sponsored plans
2) Repeal state laws requiring guarantee issue and community rating on individual plans.

One Response to “Should individual health insurance policies be underwritten? Is that fair?”

  1. Dacia Mcgee Says:

    If Obama really wanted health reform he would allow the sale of insurance across state lines. America doesn’t need another broken system. Goverment knows nothing about running health care or medicare would not be in the shape it is in :)

Leave a Reply