How individual health insurance plans are affecting the benefits landscape Featured

8:00pm EDT June 25, 2010

While many Americans receive insurance products from their employers in the form of employee benefits, an increasing portion of the population is purchasing these products — particularly health insurance — on an individual basis.

Individual insurance, unlike employer-sponsored coverage, is not tied to a particular job and coverage is not lost when employment circumstances change. Individual health insurance is very different than group health insurance. Laws mandate what types of services must be included in individual policies, and the policies often include different features than those required for group policies.

“Individual consumers may be surprised to learn that some benefits that are considered ‘standard’ within group plans may not be included in an individual policy,” says Sue Bergman, a sales executive for JRG Advisors, the management company for ChamberChoice. “But, these standards, such as maternity leave and treatment for substance abuse, can possibly be purchased as optional riders.”

Smart Business spoke with Bergman about individual health insurance, the laws surrounding these plans, and how the plans are affecting the benefits landscape.

What should employers know about the laws surrounding individual health insurance plans?

The laws concerning individual health insurance are different in most states and each state regulates how individual products can be marketed and sold. Most often, applicants are required to complete medical questionnaires and provide health information about themselves and any family members they wish to cover when applying for benefits. An underwriter reviews the information provided within the questionnaire and the risk of a particular applicant is determined. It is not uncommon for an insurance company to request additional information from the applicant or the applicant’s physician.

If the insurance company is unable to obtain the 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. Once health status has been determined, the applicant will be assigned a rate class and put into a ‘pool’ of other insured individuals with similar health status. Premiums are determined by the claims experience of the entire class of customers, as opposed to just the individual’s claims.

What is driving people toward individual health insurance plans?

While consumers value choice, and research shows that people prefer more generous benefits, cost is often the primary factor for individual health insurance consumers. Individual policies are often simpler and somewhat ‘scaled down’ in comparison to group plans, in an effort to make premiums more affordable. Studies indicate that less than 25 percent of individual consumers can afford to purchase policies that will cover 95 percent of total spending. As a result, most individual policies include upfront deductibles that the individual will have to pay before benefits begin, as well as co-payments and out-of-pocket costs that are paid directly to medical providers at the time of service.

Is individual health insurance easier to get?

Individual health insurance companies are much more limited than group insurance companies in their ability to spread risk. Even though an individual insurance company can choose not to offer coverage to people with serious medical conditions, most Americans do not have perfect medical histories and still qualify for individual coverage.

There are, however, some individuals who do not decide to purchase health insurance coverage until they know they have a medical problem or condition that will require benefits. This is known as adverse selection, and 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 implement pre-existing conditions, which means certain conditions will not be covered for a specific period of time known as an exclusionary or 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 by state. Fortunately, those who enroll and become sick or develop a medical condition are protected by HIPAA and cannot be excluded from having coverage renewed or placed into a new underwriting class.

What should employees look at to determine which type of health insurance plan they should purchase?

Of course you have to look at the monthly premium, but people should be aware of other out-of-pocket costs, such as deductibles, co-pays and preventive care, like flu shots and regular checkups. Also, look at cost sharing for drug coverage. Employer-sponsored plans usually offer a lower price for generic drugs over brand-name drugs, but individual plans don’t always have that option.

As with any purchase, the decision will vary from person to person. Determine exactly what you need out of your health insurance and what you’re willing and able to pay. Whether you are part of the market segment looking for long-term coverage or someone with short-term temporary needs, there are a variety of individual health plans available. Talk with an advisor who can help you find the appropriate plan for your specific needs.

Sue Bergman is a sales executive for JRG Advisors, the management company for ChamberChoice. Reach her at (412) 456-7236 or sue.bergman@jrgadvisors.net.