Individual Health Insurance
Meeting State Requirements
Each state will have state specific requirements regarding insurance products issued there. The insurance industry is one of the most highly regulated. Since insurance products can affect the consumer so profoundly that fact should surprise no one. These requirements tend to be based on one question: What is best for the consumer?
It would not be possible in a single course to look at individual states but it is possible to take one as an example. In doing so, the reader must be aware of their own resident states requirements. While much will be similar (a consumer has the same needs regardless of their place of domicile) there will also be aspects that are different. Additionally, laws tend to change approximately every two years in most states. Often these changes have to do with better defining an existing law (it seems someone always finds a way to circumvent current wording to their own advantage), adding clauses to an existing law, or inserting new requirements to fit a newly realized situation. We are seeing many changes with the increasing use of the internet to market insurance products. Some industries seem to be moving almost entirely to web services. Some aspects of insurance seem to be moving that way as well (continuing education courses are a prime example of this).
This course is selecting Wisconsin as the example state.
As most states have done, Wisconsin has published a Consumers Guide to Getting and Keeping Health Insurance. Wisconsin residents have specific rights under federal and state law that is designed to protect them. They dont always succeed in protecting consumers, which is why laws periodically change or are better defined.
Each section of this guide will reference a specific group and the protections and rights that are in place for them. Insurance products are among the few entities that have the legal right to place their clients into classes. Housing, for example, must treat every applicant fairly regardless of physical characteristics such as race, creed, religion, gender, or age. Insurance products use underwriting that look at multiple factors and issue or decline based upon those factors. Therefore, insurers are legally able to decline based upon individual applicant factors. Because of this, consumers may become confused regarding their personal rights.
One of the greatest factors affecting issuance or decline of an insurance product is preexisting conditions that affect an individuals health and likelihood of future claims. Each type of insurance product underwrites based upon risk, which is the likelihood of claims. A long-term care insurance policy underwrites from the standpoint of this question: Does the insured now have, or be likely to develop, a condition that will cause an extended nursing home stay? A short-term illness is not a worry for the long-term care underwriter since long-term care policies insure long-term conditions, not major medical short-term catastrophic events. An individual major medical policy underwrites from a different focus. Their concern is not so much the long-term medical events as long as those types remove the insured from the hospital to the nursing home, where the policy excludes coverage. So they ask: Will the insured have numerous or expensive claims that are covered under hospitalization and related care? They must also consider: Is an existing condition likely to become more severe causing numerous or expensive major medical claims? A disability underwriter wants to know: Is the insured engaged in an occupation or lifestyle that may cause a physical or mental disability in the future?
Any type of treatment constitutes existing so taking medication is an indication of an existing medical condition. Just because an applicants blood pressure is currently under control due to medication does not mean it does not exist. The applicant still has high blood pressure; it is simply controlled by medication. That is the reason applications request a full list of all medications being prescribed. It is not unusual for an applicant not to realize precisely what his or her medications accomplish.
Numerous laws do make it easier for people to obtain and keep individual health insurance, but insurers still have the ability in most states to deny coverage. This is not true everywhere, however. When Washington state made some changes in how individual policies had to accept applicants, insurers saw individuals from neighboring states attempt to gain access to health insurance by forging their place of residence (purchasing post office mail boxes in Washington was most commonly used).
A federal law sets national standards under the Health Insurance Portability and Accountability Act, known as HIPAA. In Wisconsin neither federal nor state laws protect the individuals access to health insurance in all circumstances.
Like most states, Wisconsin residents will find that their access to individual major medical policies will hinge to some degree on their health status. Those who are sick do have some protection however:
1. If the individual is covered under a group plan, coverage may not be denied or limited on the basis of health status. That is because group policies underwrite the entire group rather than individuals within it. Premium is also based on the entire group so individuals, sick or healthy, pay the same rate (some do allow classification differences, however). In Wisconsin, there are rules regarding when a preexisting condition exclusion period can be applied, but we are not going to look at those now. In most cases, if a previous plan was in place on the individual, any waiting periods that were satisfied will cross over for the new group major medical plan, as long as there was not a long break in coverage.
2. Health insurance policies may not be canceled due to a new illness or injury that occurred while the policy was in force. Most major medical plans are guaranteed renewable, meaning they continue as long as the premiums are paid in a timely manner. A consumer should never get into the routine of paying such premiums late. Guaranteed renewable means the insurer must renew regardless of any health changes.
3. When an individual loses their Wisconsin group medical plan, he or she will be eligible for HIPAA. The individual will be able to buy individual health insurance from the Health Insurance Risk Sharing Plan (HIRSP). There will not be any preexisting condition exclusion period and there are limits on what the premium amount will be.
4. Even if there was no previous health insurance coverage, the individual may still be eligible for HIRSP if he or she is having difficulty obtaining an affordable policy due to health conditions. There could be a waiting period for existing conditions, however.
5. Families who have children under the age of 19, do not have health insurance and meet the required qualifications, may be able to purchase insurance for their children through Wisconsins Badger Care Program.
6. The Wisconsin Well Woman Program will provide free screening for breast or cervical cancer for those who feel they may be at risk and have no other health insurance coverage. Women diagnosed with cancer may be eligible for treatment through the Wisconsin Medicaid Program.
7. Retirees between the ages of 55 and 65 receiving pension benefits from the Pension Benefit Guarantee Corporation (PBGC) may be eligible for the Federal Health Coverage Tax Credit (HCTC). This is a federal income tax credit available to help certain trade dislocated workers and early retirees, including dependents, to buy qualified health insurance coverage. The tax credit may be claimed at the end of the year on the insureds tax return or he or she can elect to have the money paid directly to the qualified health plan each month by the IRS.
While health insurance laws are put in place to protect consumers, they are not all encompassing. For example, if an employee changes jobs, he or she cannot take their employer-sponsored health care with them, although they may be able to take advantage of federal COBRA laws, exercising their state continuation rights. The departed worker rather than the employer will then pay premiums however. That is not to say that all medical benefits will be retained. While this may be the case, it is not always so; the new health plan may not cover all the same benefits or the same doctors, for example.
Employers are not required to offer job-related health care benefits and many do not. If a health insurance plan is offered, however, they may not discriminate based on health status. This means that a new worker with an existing health issue must still be covered the same as one who has no health problems at the time of employment.
When an employer does offer their workers health insurance coverage, there may be a waiting period before the benefits actually begin. Health Maintenance Organizations can require affiliation periods. If there is a break of 63 days or more in continuous medical coverage the individual may have to satisfy any new preexisting waiting period.
Not all group plans are the same. While most of us realize this we may not realize that new benefits may have a waiting period even when continuation laws apply.
For example:
Jeremy moves from one employer to another. There is no break in coverage and he has previously satisfied all waiting periods with his first employers insurance plan. However, the new coverage at his second job covers many types of services that his first plan did not. Therefore, he may have a preexisting waiting period on those newly acquired benefits.
Private insurers may deny coverage to Wisconsin applicants if their health status does not meet the insurers eligibility requirements. Besides denying coverage, insurers may elect to accept the applicant but for a higher premium. The insurer could also choose to accept the applicant, but limit coverage for the medical condition that existed at the time of application, or prior to the application. Only a person eligible for HIRSP through HIPAA is guaranteed access to individual health insurance. An individual who buys HIRSP coverage but is not eligible for HIPAA may have preexisting condition exclusions applied to their coverage.
Individual Health Care Contracts
Few states make their residents any promises when it comes to obtaining individual major medical coverage. The reason for this is simple: insurers must be able to select whom they will insure. Otherwise adverse selection would surely occur. Why? If a person could be guaranteed coverage, regardless of the applicants current health condition, no one would keep a policy during his or her healthy times. When sick the individual would immediately go buy coverage; as soon as health returned he or she would drop it secure in their knowledge that an insurer would be forced to accept them at the first sign of illness.
Wisconsin, like most states, has only limited guaranteed access to individual health insurance; whether or not a policy is available will be directly tied to health and lifestyle. In general, Wisconsin licensed insurers are free to turn just about anyone down, as long as the criterion used is fairly applied to all applicants. Whatever underwriting criteria is used, it must be used uniformly. As previously stated, an individual who is unable to obtain individual health insurance coverage may be eligible for HIRSP.
Under Wisconsin law, newborns, adopted children and grandchildren (as long as the birthparent is a dependent under the age of 18) are automatically covered under the parents fully insured health plan for the first 60 days as long as the contract covers dependents. Coverage for dependents typically requires a premium payment for such. In order to continue coverage, however, the child must be enrolled, usually within a contract-specified time period (often within that first 60-day period). Once the specified time period has passed, if the insured did not sign on the child, it is likely that underwriting would then take place.
A dependent child with mental or physical disabilities would continue being covered past the normal age when dependent status would terminate. To qualify the adult child must be incapable of self-support due to mental or physical disability and must be primarily dependent upon the policyholder for financial support. The insurer will require proof of incapacity within 31-days of reaching the age limit. This proof may be periodically required thereafter.
The term dependent is going through changes. The U.S. Census Bureau has stated that their 2005 figures show that 46.6 million people are uninsured (this does not consider those that are under insured). In 2000 the number was under 40 million. Of that increase, nearly half are between the ages of 19 and 34. We know that fewer employees are offering company-sponsored health care, primarily due to cost.
As a result of these figures, many states are looking at the definition of dependent. Most plans exclude dependent coverage once the child reaches age 19, except for full-time students.
Because of statistical information and the difficulty many young adults have affording health coverage, many states are changing their legal definitions, which will affect insurance policies. Utah, for example, does not allow a policy to age-out health care coverage until the insured becomes 26 years old, whether they are a student or not. New Jersey has changed the age-out definition to the dependents 30th birthday as long as they have no dependents of their own. In 2007 Illinois changed the dependent age until ones 25th birthday, as long as the child still resides with the parents, is unmarried, and financially dependent upon the policyholder. Minnesota is working on similar legislation, but as of 2007 had not passed anything. States are also beginning to include grandchildren as dependents under specific conditions.
Illinois has also addressed the issue of health insurance for minors. In 2005, the governor signed into law the All Kids program, a universal health care program in which all children under the age of 18 who is not covered by state programs are eligible for low-cost insurance.
COBRA will continue a dependent childs coverage if the parent was covered by an employer-sponsored plan for 20 or more employees if:
1. The covered employee dies;
2. The covered employees hours of employment are reduced;
3. The covered employees employment ends for any reason other than his or her gross misconduct;
4. The covered employee becomes enrolled in Medicare;
5. The parents becomes divorced or legally separated;
6. The child stops being eligible for coverage under the plan as a dependent child.
Individual policies are just that individual. As a result your next-door-neighbors individual major medical policy might be different than yours. What the policy contains in benefits will depend upon what was purchased. Wisconsin does not require health insurers to sell standardized policies. The only type of individually issued contracts that requires uniformity is Medicare supplemental policies, which have twelve standardized forms. Medicare supplemental policies must conform to one of the twelve federally mandated forms (stated as forms A through L).
Because there is not standardization of individually issued medical insurance policies, it can be difficult to compare policies between two competing companies. In fact, it can be difficult to compare two issued from the same insurer if the layout is substantially different. Wisconsin does require certain types of contracts to provide specific benefits, however. For example, annual mammograms for women 50 or more years old must be covered under the contract. While agents need to know what Wisconsin mandates, since the insurers know, only products meeting Wisconsins guidelines would be available to market to that states residents.
Wisconsin does not allow a preexisting waiting period to extend beyond two years. Therefore, while a preexisting condition may be excluded from coverage for less than two years, under no circumstance may it be excluded longer. Agents will notice a difference in the definition of preexisting condition between group medical plans and individually issued contracts. Individual contracts may consider preexisting any condition as determined by the plan, which existed at any time prior to the date of application. Individual health policies are not limited in how far back they can look for evidence of a preexisting condition. Bear in mind that taking medication for a condition is considered treatment. Pregnancy can count as a preexisting condition, so it may not possible to become pregnant and then seek insurance to cover it.
Individual major medical plans do not have to give credit for prior coverage in Wisconsin. Group plans must give credit for prior coverage so an individual moving from one group plan to another would not have to satisfy another preexisting waiting period, but that is not the case for individually underwritten plans.
Of course it is expected that an applicant will disclose all medical conditions that have previously existed, but insurers do have some protection from those that fail to. If a claim is made during the first two years of coverage, the insurer can check the medical background of the insured to see if the condition previously existed. There is some controversy regarding this. USA Today in People Left Holding Bag stated that individuals who believe they have medical coverage find out at the time a claim is turned in that they do not. Insurers take a different view: they must rely on the applicants information and states allow them to rescind a policy when incomplete or incorrect information is supplied, even if the incorrect or omitted information was an honest mistake. Health Net spokesperson has stated: If we determine that misrepresentation has occurred, the policy is rescinded. It is the responsibility of the applicant to be sure all information on an application is correct and complete.
It must be noted that insurers also expect an applicant to be prudent when seeking health care. Consider Ms. Gaskill, a 63-year-old retiree, who waited one year to seek treatment for a lump on her breast. She did not seek medical attention until after she secured health insurance coverage and did not disclose the condition on her application. When she sought medical attention following the issuance of her policy, she was surprised to find out they would not pay the claims. Why? Her insurer informed her an ordinarily prudent person would seek diagnosis or treatment when a lump initially presents itself. The lump was considered preexisting and, therefore, not covered.
Blue Cross of California says they rescind about half of one percent of the policies written each year.[1] While this seems low enough agents could still reduce that figure by diligence at the time of application.
Any medical condition that is not disclosed has the potential of causing a problem when a claim is submitted even a claim not related to the undisclosed condition. Agents must be diligent when having applications filled out by new clients. Is there an indication that a condition exists that was not stated on the application? Ask about it. It may prevent later problems.
The reason most uninsured state for their lack of health care coverage is price. Those with existing health conditions will face even higher rates, assuming they can get coverage at all. Additionally, cost can go up at each renewal period and probably will. Most individually underwritten major medical policies base premium rates upon attained age. Wisconsin allows insurers to charge more based upon health status, gender, age, occupation, and even on the applicants place of residence (medical costs are higher in some geographical areas). If the insured is enrolled in a managed care plan, the plan service area will also be a factor.
While Wisconsin plans will be guaranteed renewable, so illness may not be a reason to cancel the coverage, the policy can be lost if the insurer discontinues the health policy or withdraws from the individual market. It should be noted that temporary medical insurance policies are not guaranteed renewable. Temporary coverage is designed to fill gaps left between group coverage and other short-term reasons, usually for no more than six months. It is not designed to act as a major medical individual coverage.
Health Insurance Risk Sharing Plan (HIRSP)
Like many states, Wisconsin maintains a high-risk pool for those who have difficulty obtaining major medical insurance coverage. Known as HIRSP, it provides coverage for Wisconsin residents who are eligible through HIPAA and unable to obtain health insurance due to existing health conditions. There will not be a preexisting condition exclusion period in their coverage. To be HIPAA eligible:
1. The applicant must have had 18 months of continuous creditable coverage, at least the last day of which was under an employer-sponsored group plan.
2. The applicant must have used up any state continuation benefits or COBRA benefits that were available.
3. Neither Medicare nor Medicaid benefits must be available to the applicant.
4. The applicant must not have access to a group medical plan.
5. The applicant may not currently have health insurance. It is possible to apply to HIPAA while group coverage is currently in place if the insured knows it is ending.
6. The applicant must apply for health insurance through HIPAA within 63 days of losing prior coverage.
Once enrolled in an individual health plan, HIPAA eligibility ends.
For those not HIPAA eligible, insurance can be purchased from HIRSP if the applicant is a Wisconsin resident and can demonstrate proof of uninsurability. Most would know they were uninsurable because they had tried to buy a policy and been turned down, but there is also written criteria, including:
1. Testing positive for HIV;
2. Medicare eligibility due to a disability;
3. Within the previous nine months received one of the following:
a. A notice of decline for two other coverages that he or she has applied for.
b. A of cancellation of coverage from one or more insurance companies.
c. A notice of reduction or limitation in health insurance coverage. This could include exclusionary riders that substantially reduce coverage.
d. A notice that the insureds health premium has been increased by 50% or more, unless this increase applies to nearly all such policies issued by that insurer.
e. A notice that the premium for health insurance that was applied for, but not yet in effect, was rated at least 50% higher than that charged for a standard risk.
HIRSP does not provide a family policy, with all members covered under it. Each individual must qualify on his or her own. The applicant would come under either Plan 1 or Plan 2. Plan 1 is for those who are not eligible for Medicare; Plan 2 is for those who are eligible for Medicare.
Plan 1 Option A has an annual deductible of $1,000; Option B has an annual deductible of $2,500. Once the annual deductible is met, HIRSP will pay 80 percent of the claims until the out-of-pocket limit is met. The maximum out-of-pocket limit for Option A is $2,000 and Option B is $3,500. There is a separate out-of-pocket maximum for prescriptions: $750 for Option A and $1,000 for Option B. HIRSP pays 100 percent for most covered services once the annual deductible has been met.
Under Plan 2, which is for Medicare eligible individuals, after a $500 annual deductible is met, HIRSP pays 100% of allowable charges for covered expenses not paid by Medicare.
HIRSP has a lifetime maximum of $1 million.
We have used Wisconsin as our demonstration state; agents in other states should learn the specifics of state insurance for their resident state. Usually it is possible to go to your states website to find the details.
Small Employer Coverage
Federal law gives some protections to employers who want to purchase health coverage for their workers. Small employers are generally defined as those who have between 2 and 50 employees. Federal law and state law may have different definitions of small employer and employee. It is necessary to check with your resident state for details.
In most cases small employers cannot be turned down when applying for group coverage with an insurer who provides that type of products. This is called guaranteed issue. Obviously, an insurer who does not provide that type of product would not be expected to insure the group. Insurers may require a minimum percentage of the eligible employees sign up for coverage. They can also require the employer to pay a minimum share of their workers premiums.
Large groups are generally those with 51 or more employees. Unlike a small employer group, a large employer group can be turned down for health coverage.
Group policies may not be canceled by the insurer when one or more employee becomes sick. This is called guaranteed renewable. As long as premiums are paid in a timely manner, health status will not cause loss of coverage. Group policies may be terminated if the insured commits insurance fraud. The policy may also be canceled if the insure is canceling all policies of that type. If the insurer has other group policies, they are required to offer it to the terminating group.
End of Chapter Five
United Insurance Educators, Inc.