Due To The Unhealthy Lifestyles Americans Have Adapted, The Total Costs Have Increased Exponentially.
Data show that US health care expenditure has reached the trillion-dollar level, with health spending pegged at almost 18% of the country’s gross domestic product. This just means that: there is a great number of Americans getting sick and/or it has become very expensive to diagnose, treat and manage ill patients. Debate on the causes of this seemingly uncontrollable increase in health care costs in the country has arisen in many social corners, from town halls to the houses of congress. Some of the reasons named include the proliferation of more advanced medical/diagnostic technologies and drugs, increased prevalence of chronic illness caused by poor health behavior and lifestyle, and administrative costs relating to health care provision and the overhead costs incurred by health insurance providers.
Numerous position papers and medical research have pointed to the unhealthy lifestyle by Americans as one of the main causes why health care costs have increased, specifically in the areas of hospital care, nursing home care and retail prescription drug expenditures. Obesity, overweight and abnormal eating behavior have been pointed out as the primary causes of the increased prevalence of chronic diseases among Americans; of which include cardiovascular diseases, metabolic syndrome, hypertension and diabetes mellitus. Other contributory factors include tobacco smoking, abnormal alcohol consumption and substance abuse; these cause high incidence in respiratory diseases, liver diseases and other chronic systemic conditions. The reason why these chronic illnesses contribute to the rise in health care costs is because each of these diseases would require protracted medical attention and treatment, which may include long-term rehabilitation when applicable. Put simply, the longer a disease is treated and managed and the longer a patient stays in a hospital, the higher the hospital bill gets and the higher the insurance companies would need to pay, provided that the patient has health insurance coverage; if not, the patient would have to shoulder these hospital bills and the required prescription drugs, and this could reach up to thousands of dollars, especially for those who have complications. Another area of concern within the health care sector of the US in terms of increasing health care utilization may be the increased incidence of transmissible diseases. The movement of people around the world has made it easy for infectious diseases to be spread and transmitted, and with the US being a common destination, either for tourism or as a migration destination, the country’s health care sector has been burdened, resulting to even higher health care utilization.
Employer-sponsored health insurance coverage has increased significantly, placing high cost burdens to private companies and employees. Many US families depend on their employer to provide health insurance for them and their families; however, the rising rate of unemployment due to the economic crisis has resulted in many families not having health insurance coverage at all. Americans who may have lost their jobs are now looking for affordable health insurance that would cover their own health care needs, as well as those of their loved ones especially their children. Currently, families who have nothing to spend for health insurance are turning to Medicaid; enrollment to Medicaid has been observed to increase due to the recession. If parents continue to be unemployed and thus not covered by health insurance, they would need to research for health insurance providers giving more affordable products. These health insurance providers may be researched using the internet, and comparisons of their prices and coverage can be done by accessing websites that cater to such inquiries. There are websites that help people select the health insurance that best suits their needs, including free price quotations, insurance providers on a per state basis and a description of diseases that are covered by each of the health insurance products. Consumers may also check the internet for comments given by existing clients of specific health insurance providers, in relation to the service they are providing.
Due to the increasing prices of health insurance across the country which is brought about by the high utilization of health care across the US, Americans may need to modify their lifestyle in order to prevent having to be hospitalized. Both the US government and the individual citizen have their roles to play in making this happen – – – the former, in making sure health programs that promote healthy living (smoking cessation, alcohol control, exercise promotion and healthy eating behavior) are implemented and the latter in ensuring that he lives a healthy lifestyle.
The cost of health care is too high. Too many Americans don’t have insurance. Something must be done! It was a sincere desire to solve problems like these and “do something about it” that inspired politicians to pass the Affordable Care Act on March 23, 2010. Unfortunately, good intentions from government often don’t lead to good results. Out of the many lofty ideas contained in the landmark legislation, the concept of digitalizing records and billing to increase efficiency and reduce costs seemed like a no brainer. It seemed to make practical sense. Reduce paperwork and postage, just like online banking and paperless billing for utilities, and save money. But now this from September 21, 2012 edition of the New York Times:
“… in reality, the move to electronic health records may be contributing to billions of dollars in higher costs for Medicare, private insurers and patients by making it easier for hospitals and physicians to bill more for their services, whether or not they provide additional care.
Hospitals received $1 billion more in Medicare reimbursements in 2010 than they did five years earlier, at least in part by changing the billing codes they assign to patients in emergency rooms, according to a New York Times analysis of Medicare data from the American Hospital Directory. Regulators say physicians have changed the way they bill for office visits similarly, increasing their payments by billions of dollars as well.
So what is the explanation for this phenomenon? The same article suggests that new billing systems help doctors remember to bill for services they were forgetting to bill for before. That’s right according to the article, before electronic records doctors were under billing Medicare!
“Many hospitals and doctors say that the new systems allow them to better document the care they provide, justifying the higher payments they are receiving. Many doctors and hospitals were actually underbilling before they began keeping electronic records, said Dr. David J. Brailer, an early federal proponent of digitizing records and an official in the George W. Bush administration. But Dr. Brailer, who invests in health care companies, acknowledged that the use of electronic records “makes it faster and easier to be fraudulent.”
So if it weren’t for doctors under billing before and over billing now (fraud) this new federal policy would be great, right? Wrong. Even before the passage of the Affordable Care Act, the health care system in the United States was one of our most heavily government schemed and regulated industries. So while making records and billing electronic in an open marketplace may reduce costs. It won’t always work when slathered on top of an already inefficient and broken system. This has implications for healthcare reform in general. We have serious challenges that need to be solved. And while it may feel good to hear politicians say they have a solution, the truth is government central planning almost never works.
The relationship and decision making process between patient and doctor has become increasingly disconnected. Pushing them further and further apart is a health insurance system that obfuscates prices, micromanages transactions, and limits choice, and a government set to control the entire industry through bureaucratic command and control polices. Left out of the equation is the doctor – a professional that pursued a career both to serve and make money – and the patient – a consumer who in almost every other aspect of life makes rationale purchase decisions. The problem is the current system does not enable the doctor and patient to interact in a normal fashion, and thus we have looming problems.
According to the Washington Post’s John C. Goodman demand for primary care physicians and routine visits will increase substantially:
“Here is the problem: The health-care system can’t possibly deliver on the huge increase in demand for primary-care services… Take preventive care. ObamaCare says that health insurance must cover the tests and procedures recommended by the U.S. Preventive Services Task Force. What would that involve? In the American Journal of Public Health (2003), scholars at Duke University calculated that arranging for and counseling patients about all those screenings would require 1,773 hours of the average primary-care physician’s time each year, or 7.4 hours per working day.”
At the same time for a variety of factors, the supply of primary care doctors is declining according to Anne Lowrey and Robert Pear writing for the New York Times:
“The Association of American Medical Colleges estimates that in 2015 the country will have 62,900 fewer doctors than needed. And that number will more than double by 2025, as the expansion of insurance coverage and the aging of baby boomers drive up demand for care…Physician compensation is also an issue. The proportion of medical students choosing to enter primary care has declined in the past 15 years, as average earnings for primary care doctors and specialists, like orthopedic surgeons and radiologists, have diverged.”
Under a free market system, high demand and low supply would mean more doctors flocking to serve more patients to make more money. But that’s not happening. Instead, patients are waiting longer and longer for service, and doctors are pursuing better ways to earn a living. One of those ways is leaving general practice altogether, but another is the concept of concierge medical care. In concierge medicine, you pay your doctor a yearly set fee in exchange for access and better service. This retainer fee can be as low as $1,500 per year. If a concierge doctor signs up 150 patients, his income is $225,000 per year. And because his income comes directly from his patients, he doesn’t have to spend time and resources billing, authorizing, and dealing with insurance carriers or government. The perks for the patient include more attention, house calls, mobile phone and email accessibility, and the ability to set a same day appointment.
Think of concierge medicine as a return to the family doctor of yesteryear. It requires you to change your perspective and pay out-of-pocket for service. But if health care is a priority and quality of service a factor – it may become the new realty for those who can afford it.
Have you ever been approached by a friend or acquaintance who wants to sit down over coffee and talk about your financial planning needs? Chances are, if you took the meeting, the subject of life insurance was one of the first topics addressed. And during the meeting you are told that no matter what your life situation — married, single, divorced, kids or no kids — you either need life insurance or need more of it. This very common phenomenon is what makes the entire topic of life insurance and the process of getting it dreaded and irritating. And that’s a shame because life insurance can be a valuable financial planning tool under the right circumstances, but many who know they need it shy away from the process.
A new web site promises to take the salesman out of life insurance and in fact, eliminate the need for any human contact whatsoever. According to 1clickcoverage.com:
“The process has been made simple; the customer answers a few underwriting questions, no medical examinations are required, if qualified a rapid approval is issued and the policy can be paid for and printed immediately through the internet.* There are no phone calls, no waiting for your policy just fast reliable and affordable insurance made easy.”
We researched the asterisk “gotcha” after the line about “paid for and printed immediately through the Internet”, but found out it simply refers to the fact that in California the policy will be mailed instead of downloaded, hardly a significant hurdle to a 100% online experience.
1ClickCoverage is the brainchild of National Brokerage, a life insurance brokerage that specializes in technology. The carrier behind the coverage and its subsidiaries are highly rated for financial strength by services such as Standard and Poor’s and AM BEST.
So is there any catch? At this point the site is limited to term life insurance policies with a benefit maximum of $350,000. We were not able to compare pricing against other leading carriers, but we would not be surprised if premiums are slightly higher due to the easy underwriting and no medical examination requirements. So what’s the bottom line? If you need term life insurance and have been procrastinating getting it because you do not want to meet with a salesman or endure an examination 1ClickCoverage.com is an option you might want to consider. And while we always encourage consumers to compare pricing, for those wishing to avoid the time and hassle involved in the life insurance process a slightly higher premium may be more than worth the extra cost.
The Supreme Court decision on the Affordable Care Act makes its implementation much more certain. Barring repeal by a new Congress and new President, a new health insurance system will be in full implementation by 2014. In this article we are going to examine one of the most talked about, and least understood, new provisions – Health Care Exchanges.
So what do we know about Health Care Exchanges? We know that Maryland is, according to the Maryland Community Gazette, “Out in front on health care reform” and that “State leaders were wise in setting up an exchange”. We also know that Louisiana in the words of Governor Bobby Jindal, “will not set up an exchange” despite the Supreme Court decision. So now we know it’s controversial, but what exactly is a Health Care Exchange and why should the average consumer care?
A Health Care Exchange at its core is just a website. In fact, it’s a web site very similar to Health Insurance Online. It’s a place where you can compare competing health insurance plans from different carriers. Here are some important factors to consider:
Each state is eligible to set up its own exchange. Some may and some may not. If a state does not consumers in that state will be able to use a federal health care exchange site.
The plans must meet the minimum standards of the Affordable Care Act. That means the plans may be very different than the types of plans you see now on our site.
There will be four levels of plans divided into nifty metallic categories: Bronze, Silver, Gold and Platinum. Of course just like the metals themselves the plans cost more based on their value – in health insurance terms that means coverage.
Unlike today, if you don’t have a government approved health insurance plan from some other source – like an employer – you MUST purchase one of the Exchange plans.
Consumers that have to purchase a health insurance plan but can’t afford to pay for it will be subsidized through a complex formula of cost-sharing and premium subsidies.
So now we know that a Health Care Exchange is really a shopping comparison engine like Health insurance Online, Travelocity, and Orbitz why all the fuss? The refusal of some states to build an exchange is more of a political statement than anything else. The Exchange is coming and you are probably going to have to use one, so get ready.
News and talk radio was abuzz about recent statements from three of the largest health insurance carriers. In public announcements designed for maximum exposure, UnitedHealthcare, Aetna, and Humana let it be known that regardless of the future of the Affordable Care Act, they would continue to allow young adults to remain on their parent’s policies until the age of 26. UnitedHealthcare and Humana also said they would no longer impose lifetime benefit limits on their policies. So what happened? And why the announcement now, right before an anticipated Supreme Court decision?
There are two general explanations for this change of heart, and neither of them credits the large companies with generosity or altruistic motives.
Hardcore supporters of Obama’s health care reform policies see nothing but a PR conspiracy. Activist group Health Care for America Now (HCAN) released a near hysterical statement on their web site under the headline of “Don’t be fooled by the big insurance companies”. It says in part:
“This didn’t happen out of the goodness of the insurers’ hearts. This isn’t about corporations doing the right thing. And it didn’t happen now, just a few weeks before the Supreme Court announces its ruling, by coincidence. This is a PR offensive. The coordinated announcements by three of the five biggest health insurance companies is a cynical tactic…”
The problem with this explanation is that is grounded in ideology rather than reality. Groups like HCAN don’t believe companies should make any profit at all offering health insurance. Their agenda will not be fulfilled until health care is free for everyone and administered by the federal government. So of course they see the motives as sinister and driven by greed.
Others see more reasonable business calculations at play in the announcements. It is considered more likely than not that the Supreme Court will throw out at least part – if not all – of the Affordable Care Act. But that doesn’t mean that the need for healthcare reform goes away. It just means Congress will need to look at different solutions. If Romney wins the Presidency and Republicans take full control of Congress it is almost certain that a more free market approach to reform will be explored. The voluntary concessions put forth by the insurance companies happen to touch on many of the most popular aspects of the Affordable Care Act. So instead of changing their minds the big insurers may be sending a message – this time we want to be seen as part of the solution instead of the problem.
A new study shows that most employees in a large majority of the states would do better with an individual health insurance plan rather than participating in group coverage. Zane Benefits, which provides a Software-as-a-Service platform for employers, found that individual plans cost 50% less than group coverage for an average of 80% of those applicants who medically qualify. According to the study:
“The dramatic relative price change between individual versus group policies has occurred because 45 U.S. states allow insurance carriers to distribute individual health insurance with medical underwriting. Allowing medical underwriting means that insurance carriers may reject, accept, or uprate (i.e. charge more for) applicants based on their health status or age. KY, WA, and NH changed in 2003 to allow medical underwriting.”
Of course, medical underwriting is what those who believe in a free market would call the way insurance is supposed to work. An insurance company is taking a financial risk based on a number of quantifiable factors – your health status and your age are just a couple of the most common – and charges you a premium that takes into account payouts, overhead and, of course, profit. States that attempt to manipulate this underwriting process by forcing insurers to accept all applicants and not allowing them to adjust premiums are called “guarantee issue” states – and it should be no surprise that these states also have the highest rates for individual health insurance.
The study also notes that current regulations may make individual health insurance even more affordable that the study suggests. These include:
Individual health insurance is guaranteed renewable. That doesn’t mean your premiums won’t increase. But it does mean you can’t lose your coverage based on your claims history.
Health Reimbursement Arrangements now allow employers to pay employees, on a tax free basis, for individual health insurance costs.
Employees can get guarantee issue insurance through HIPAA mandated state risk pools.
Federal health care Reform will require a nationwide risk pool that will offer guaranteed issues insurance to those who have been previously uninsured.
The study reaffirms our belief that while health care is far from perfect and in need of reform, it is often innovation and new ways of thinking about coverage that offer brighter and more affordable solutions that government mandates and intervention.
We’ve been getting questions from people confused about how the Affordable Care Act (ACA) will affect Medicare and related health care plans in the months ahead. This confusion is understandable. In this column, we’ll try to clear up the confusion and show how a smart consumer can navigate Medicare-related coverages.
First, a quick review of how Medicare, Medicare Supplement and Medicare Advantage plans work.
Medicare is, of course, the federally-administered health care benefit program that provides coverage to most Americans over age 65 (and millions of younger people with long-term health issues). The program is organized into four parts:
Part A covers inpatient hospital care;
Part B covers outpatient medical services;
Part C offers an alternative, a combination of hospital and outpatient services structured along the lines of a managed-care plan;
Part D covers the cost of outpatient prescription drugs.
About three-quarters of American seniors use Parts A and B, which together operate something like an indemnity insurance plan that offers flexibility in choosing doctors and/or hospitals; the remaining quarter opts for Part C, which—as we’ve noted—operates in a manner similar to an HMO or other managed-care plan.
If you’re eligible for Medicare and opt to use the more-flexible Parts A and B, you are subject to many out-of-pocket fees and expenses. Also, things like dental, vision and long-term care (LTC) coverage aren’t offered. For these reasons, a vibrant market in private-sector Medicare Supplement insurance has grown up around the government program. (This supplemental insurance is often called “Medigap” coverage; but some professionals who work in the market find that term derogatory. So, we’ll try to avoid it.)
Medicare Supplement policies are offered by private insurance companies; but they are heavily regulated by the federal government. All Supplement policies must match one of six coverage templates designed by the Department of Health and Human Services; these templates are named Plans A through F, with A offering the least additional coverage and F offering the most.
A quick note: Medicare Parts A through D and Medicare Supplement Plans A through F do not correspond with one another in any way. They are two totally different groups of coverage that only share, somewhat confusingly, a lettering system for naming their various elements.
The key part of buying Medicare Supplement coverage is timing: If you’re going to buy it, you need to do so during the first six months that you’re eligible for Medicare (usually, though not always, starting the day you turn 65). This six-month window is called the Initial Enrollment Period; during it, your acceptance is guaranteed and the insurance company is required to waive any pre-existing condition exclusions or limits.
If you don’t choose the supplement coverage during your Initial Enrollment Period, you will be subject to medical underwriting and may be subject to pre-existing condition exclusions. These underwriting standards aren’t impossible…but they can be difficult. And they can limit the amount of supplemental coverage you can buy.
If you’d rather avoid the expense and complexity of Medicare and Medicare Supplement coverage, you can choose a Medicare Advantage plan instead.
Like the supplemental coverage, Medicare Advantage (formerly called Medicare+Choice) plans are issued by private-sector insurance companies. These private insurers are paid a monthly fee by the government in exchange for providing managed-care type medical services to eligible consumers. As of last year, the average monthly per capita payment was a little over $900.
If the services provided by the company cost less than the payments collected, the company keeps some profit and rebates the rest to the consumer in the form of a credit that the consumer can apply to buying additional coverage. Through last year, the average annual rebate was about $1,000.
In most cases, Medicare Advantage coverage offers first-dollar coverage (that is, no out-of-pocket fees, deductibles, etc.) in exchange for limiting your selection of doctors and hospitals to those who have agreed to be part of the insurance company’s provider network.
Like Medicare Supplement coverage, Medicare Advantage has a limited Initial Enrollment Period. If you don’t enroll at that time, you’ll have to wait until the next Annual Enrollment Period—which is usually a six-week window from mid-October to early December. And, when you enroll, coverage doesn’t begin immediately; it starts a few weeks later, on January 1.
So, that’s the recap of the basic mechanics. Now, to answer the most common questions….
Can you change your Medicare Supplement plan (that is, your selection from the A to F menu of additional coverages)?
Yes. Most insurance companies will require that you do this during the Annual Enrollment Period. And you may be subject to new health underwriting—so, if your health has declined, you may have trouble switching to a Supplement plan with more coverage.
Can you change your Medicare Advantage plan?
Yes. Again, you’ll need to do this during the Annual Enrollment Period—but, as with other types of managed-care coverage, underwriting standards are usually more relaxed when you’re changing between Advantage plans.
Can you change from a Medicare Supplement package to a Medicare Advantage plan?
Yes. There’s just one big caveat here: the Annual Enrollment Period for Supplement plans and Medicare Advantage are not always the same. To transition smoothly, make sure those enrollment periods match.
Can you change from a Medicare Advantage plan to a Medicare Supplement package?
Yes. But this is the most difficult transition. First, there’s the timing issue on the enrollment periods; then, the Supplement carrier will usually require new health underwriting—so you’ll be subject to a physical and may have some exclusions or restrictions written into the policy.
Does the Affordable Care Act eliminate Medicare, Medicare Supplement or Medicare Advantage plans?
Here’s where things start to get confusing.
The simple answer: The ACA does not eliminate Medicare and Medicare Supplement plans. In fact, the Feds have given several breaks to Supplement insurance companies that suggest their products will do very well in the near-term future (although the long-term prospects aren’t so clear). So, they’re not going away.
However: The ACA will cut—and cut substantially, by 2017—federal funding of Medicare Advantage plans, which will probably leave Medicare Supplement plans as the only available choice for seniors who want to get more comprehensive coverage than Medicare Parts A and B offer.
The main cost-saving element of the ACA, worth an estimated $240 billion in the first 10 years, is…cuts in Medicare Advantage funding. According to a report released in the spring of 2011 by members of the House Ways and Means Committee, “it is estimated that more than seven million seniors will lose their Medicare Advantage plans, resulting in a massive migration of seniors to Medigap plans.”
So, the ACA favors Medicare Supplemental packages over Medicare Advantage plans?
Yes. Another example: Citing language in the ACA, the Department of Health and Human Services has exempted Medicare Supplement carriers from so-called “rate review rules.” This means that Supplement carriers will be free to increase the rates and premiums they charge for the coverage without HHS oversight. This exemption will become important in a few years, when the ACA’s “guaranteed issue” standards are fully implemented. At that point, people will probably be paying more for Medicare Supplement coverage, even though the plans will likely cover less.
In short, the ACA “clears the field” of competition for Medicare Supplement policy carriers in the next few years, which will make it easier for those companies to raise rates.
I have a Medicare Advantage policy and like it. How much longer can I keep it?
At least another year—through the end of 2013. And maybe longer.
Although some political partisans dismiss Medicare Advantage plans as a scheme hatched by “greedy” insurance companies, the fact is that more than 12 million seniors use them. And most of those people like them. As a result, there’s been some political hedging about just how quickly Medicare Advantage is being phased out. Originally, cuts were supposed to begin in 2013—which would mean insurers would raise rates and possibly stop offering the plans, as of the upcoming Annual Enrollment Period which begins in mid-October 2012.
A few weeks before the U.S. presidential election.
So, the HHS recently announced that it would move money from a fund designed for “demonstration projects” to replace the first phase of cuts in Medicare Advantage funds. This last-minute shift of approximately $8 billion means there will be no effect on the plans through the coming year. As one pundit has noted, the move allows the current administration to “take credit for a popular program [they] really want to kill.”
The long-term prospects for Medicare Advantage under the ACA are still grim. By the time the Annual Enrollment Period for 2014 comes around, it’s likely that the plans will require out-of-pocket payments from consumers to sustain even their limited services—which effectively defeats the purpose of a managed-care-style plan.
So, am I better off moving to a Medicare Supplement package this fall?
Not so fast. Some members of congress are concerned that Medicare Supplement packages aren’t a great deal for consumers and have proposed bills requiring insurance companies that write Supplement coverage to meet higher medical loss ratios (MLRs), the percentage of premium dollars that go toward medical care as opposed to overhead and marketing costs.
But industry spokespeople have said that higher MLR standards could force carriers out of the market and make a hash of existing coverage.
…and, of course, there’s always the chance that the U.S. Supreme Court will overturn the ACA—returning the entire debate over Medicare Supplement packages and Medicare Advantage plans back to where it was several years ago. At that point, Medicare Advantage plans seemed to be in the growth position.
We’ve been getting a lot of questions lately from people concerned about losing their current health insurance coverage before the “guaranteed” coverage provided by the Affordable Care Act (ACA) becomes available. If it actually does.
Some of these letter-writers say that their employers plan to discontinue coverage, whether or not the ACA is overturned by the Supreme Court or repealed by a future congress. These questions seem to reflect a general anxiety about the current state of the health insurance marketplace. And a few sound a bit like urban legend—most polls on the subject indicate that employers do not plan to cut health coverage this year or next. (Or, at least, they won’t admit such plans to pollsters.)
Regardless of anxiety or opinion polls, the fact is that various laws at the federal and state levels make it difficult for employers to discontinue health insurance benefits, once started. But, in the interest of clearing up confusion, we’ll answer the main question: What happens if your employer decides to cut off your health coverage? For starters, the decision probably won’t take effect immediately. The federal Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) applies to all companies with more than 20 employees and controls how insurance benefits are managed.
COBRA is most relevant to insurance consumers because it requires employers to make existing coverage available to former employees, in most situations, for between 18 and 36 months after the employee becomes “former.”
COBRA coverage isn’t free to the former employee; you have to pay your former employer the monthly premium (plus up to 2 percent more to cover the former employer’s administrative costs). This can be expensive, especially if the ex-employer has an older employee population and is paying a higher group premium. But the former employer must make the coverage available; and, for people with health problems, COBRA coverage is often a better deal than individual-coverage alternatives. COBRA rules also apply when an employer decides to discontinue health insurance benefits. Effectively, the law requires the employer to give employees advance warning of the discontinuation—and must make the benefits available for at least the COBRA-minimum 18 months available to former employees.
If you’re in good health, COBRA coverage may not be so important. You may be able to buy any of several types of individual health policy for the same price. Or less. But, as we’ve noted, if you are (or have a dependent who is) in poor health or have pre-existing conditions, keeping COBRA coverage will usually be your best strategy.
The 18- to 36-month COBRA period is intended to give you enough time to search for either a new job or an individual policy that suits your needs. The key here is to make sure that you start that search right away—especially if you have a health history that will make finding good individual coverage difficult. The goal, from the beginning, should be to have a solid solution in place well before you run out of time on COBRA. We hear from many letter-writers who wait until their COBRA coverage ends to start looking for other coverage. That’s dumb.
One last note on COBRA coverage: The federal law allows individual states to follow their own laws instead, as long as those state laws at least match standards set by the federal version. For example, Connecticut state insurance law (CGS § 38a-538) requires employers to allow “individuals to elect to continue coverage under a group plan pursuant to federal extension requirements established by” federal COBRA. And, if an employer decides to discontinue health coverage, it has to wind down the benefit over a period of at least 18 months. So, check with your state’s Department of Insurance about which laws apply. But the fact is that, because of COBRA’s long wind-down period, many employers trim away at coverage rather than eliminate it altogether. Or they pass a greater portion of premium payment to employees, often under the rubric of “cost-sharing.” Still, if your employer does end all health insurance coverage—or if its COBRA coverage is extremely expensive—you can buy yourself additional time to find a long-term solution by using short-term or “temporary” health insurance coverage.
(At this point, some nit-picking readers may point out that all health insurance is temporary, since it’s usually set up on a one-year term. But, as we’re about to see, the insurance industry considers “temporary” to mean a policy with an ever shorter term.)
Some common traits of short-term health insurance:
generally lasts up to 11 months;
may be renewable for one or two additional 11-month terms;
some policies are structured as one-month contracts, renewable for a longer term (six to 11 months);
even though most short-term policies have simplified applications, underwriting is strict; if you’ve ever been denied health coverage, you probably won’t qualify;
the underwriting process will consider an applicant’s height and weight;
generally, all insured persons must be under the age of 65;
pre-existing condition limits and other exclusions are often strict and “look back” as much as 36 months (this varies by state);
typical policies do not pay for routine preventative care such as physical exams, immunizations, and PAP tests;
generally short-term policies have high deductibles, starting at $500 and going as high as $5,000 or ever $10,000;
lower deductibles will usually be followed by 80/20 co-pay to $5,000 or $10,000, followed by full coverage;
as of early 2012, short-term policies were available in all states except Massachusetts, New Jersey, New York and Vermont.
Though their coverage is limited, these policies have been growing in popularity over the past decade. They’ve really taken off as a low-cost alternative to COBRA coverage. By some estimates, as many as 16 million Americans have been buying temporary health insurance each year in the early 2010s. And the growth in market size has driven premiums down. A short-term health insurance policy usually operates like an indemnity plan, which means you will have the ability to see any doctor or specialist you choose. However, most short-term policies require pre-certification of treatment.
“Pre-certification of treatment” is a process whereby you have to obtain prior verbal or written authorization from the insurer for any covered:
hospital admission;
inpatient procedure, therapy or treatment; or
outpatient surgery.
Here is standard pre-certification language from a short-term policy:
At the time notification of surgery is made, We will inform the Insured and his or her Provider if a second opinion is required, at the expense of the Company, before certification will be given and will assign a length of stay if it is determined that Inpatient hospital care is Medically Necessary. We may extend the length of stay upon the request of the insured or the Provider if We determine an extension is Medically Necessary. No benefits will be Provided under this Policy for expenses that are determined not to be Medically Necessary.
Treatment Provided at any time after initial certification that differs from the specific plan of care and treatment previously authorized requires re-certification by Us. While some short-term policies are renewable for 30 months or more, the insurers may refuse to issue a second or third policy if you have filed any claims under your previous short-term policy. Others may offer another policy—but will treat any injuries or illnesses that occurred during the previous short-term policy as ore-existing conditions and won’t cover treatment related to those conditions in the new term.
So, if your employer really does discontinue health coverage, your two best tools for buying time to find new coverage are: the required COBRA wind-down period; and the short-term health policy. Between them, these tools should give you from a few months to three years to find a long-term solution.
Just don’t wait until the interim options expire to start looking for that.
Anyone who wants to buy insurance wisely needs to be familiar with the phrases “soft market” and “hard market.” The insurance market—like housing markets, energy markets and most others—follows a cyclical pattern of expansion and contraction. The periods of expansion, called “soft markets,” are characterized by:
steady or lower rates and premiums,
easier underwriting standards, and
more aggressive competition among insurance companies for business and market share.
On the other end of the cycle, the periods of contraction—called “hard markets”—are characterized by:
rising rates and premiums,
stricter underwriting standards, and
less competition among insurance companies, including some companies exiting certain markets altogether.
On average, a complete soft/hard cycle lasts between seven and ten years, with each part lasting about three years. (Some recent evidence suggests that these averages are trending longer.) So, the best time to shop for new or improved insurance coverage is during a soft market. And, during a hard market, you should make sure to keep whatever insurance you have in place—because if you need new or replacement coverage, it’s likely to cost more and provide less.
What factors influence turns in this soft/hard cycle? That’s hard to say. Some insurance professionals think their market follows the general economy, especially interest rates; but others think the insurance market is actually a leading indicator of where the general economy is heading. One thing experts agree on: the combination of low interest rates (which hurts insurance companies’ investment income) and slow growth encourages hard-market conditions. Changes in laws or regulations can have an effect, too.
Earlier this year, the big insurance broker Marsh released a projection for insurance market conditions in 2012. While the firm’s actuarial brains say that market conditions for the year will come up a little short of their definition of a “hard” market, they think rates will be going up.
According to David Bidmead, Marsh’s head of U.S. operations:
“Carriers are expected to be extremely disciplined in their underwriting and seek rate increases where they can. Those insureds that are able to provide carriers with complete, accurate, and quality data will be best positioned to navigate a changing insurance market and effectively differentiate themselves from others seeking critical capacity for catastrophe risks.”
“Extremely disciplined underwriting” is not generally a good thing for insurance consumers. It means lots of applicants will be turned down for the best policies. And, even if they qualify for coverage, the cost will be steep. Insurance companies have been preparing for stricter underwriting because they expect the Affordable Care Act to be either overturned by courts or repealed by Congress. And that will likely mean a flood of Americans looking for individual health insurance.
Why? In many cases, employers and employer groups have already made plans to drop health coverage for their employees as the ACA takes effect; if the law is overturned, those employers/groups will have to either:
pay higher premiums for a shrinking level of health coverage, or
drop health insurance as a benefit.
Even if some choose the first option, enough will choose the second that many employees will be turned loose into the market for individual health insurance policies. This move should not come as a complete surprise. The market for individual health insurance policies has been growing modestly for several years; in fact, its growth is one of the reasons that the experts at Marsh and other brokerages say the current insurance market doesn’t quite qualify as “hard.” This modest growth usually fuels the kind of competition that drives prices down. Like most sellers of goods or services, insurance companies like growth—as long as it’s steady and predictable. The flood of consumers into the individual policy market might be overwhelming, though, which could push rates and premiums up.
So, if you’re turned loose in the individual health policy marketplace, what will “disciplined underwriting” mean for you?
Health insurance underwriting metrics are the same for group and individual policies—they’re just more severe for individual policies, because there’s no risk pool to share the cost of claims. So, expect a lot of questions about your health—present and past—as well detailed lifestyle questions. And get ready for blood tests, height and weight confirmation and other para-medical examinations before you get coverage. If you smoke or drink heavily, or if you’re overweight, expect to pay a lot more than sober, non-smoking, thin people pay. Age also plays a major role in health underwriting. Since health policies tend to renew on an annual basis, you can’t usually lock in a set premium for 10 years or more, as you can with life insurance. (This may change in the next few years.) Instead, look for a policy that’s “guaranteed renewable”—this is as close to a locked-in rate as the health market currently offers. If you can find a policy that guarantees renewal, make sure you keep for as long as possible. Particularly if the insurance market remains in a hard phase for the next few years.
As we’ve noted before, one of the best ways to save money on health insurance is to look for a high-deductible policy combined with some form of tax-advantaged savings account. The ACA limits some of the cost-saving features of the most common high-deductible policy-plus-Health Savings Account packages. But, if the law and its HSA limits are overturned, expect those packages to become popular again.
There are several other administrative and regulatory steps that will help make individual health policies more affordable. The most commonly-cited of these steps include:
Allow individuals to claim the same tax deductions that employers and employer groups claim currently for health insurance expenses.
Allow individuals (and, for that matter all consumers) buy health insurance policies across state lines, creating more competition.
Loosen the rules allowing small groups (such as trade/professional associations, religious or social organizations, etc.) to establish purchasing groups or risk pools for their members.
Create liability limits for medical malpractice and other health-care related liabilities—and make sure that those lower costs are reflected in relevant health insurance rates and premiums.
If some or all of these changes are made, a hard (or not-quite-hard) health insurance market might soften a bit. Whatever the future of the Affordable Care Act, the trend in the health insurance markets seems to be a movement toward more individual policies. In the long run, this could mean a more efficient system of allocating health care costs; in the short run, it may mean some market uncertainty and higher premiums. This is especially true if a repeal of the ACA coincides with a move to the hard end of the insurance market cycle.
