he marketplace for individual medical insurance is not for the faint of heart. And if you're venturing into it for the first time after enjoying coverage under an employer's group plan, you're in for some surprises.

Few of them will be pleasant. But don't let this scare you off—medical insurance is too important. Instead, brace yourself with some information about the individual market and some tips for making your way through it.
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Attitude adjustment: individual vs. group coverage
You can start by accepting two facts that distinguish individual from group coverage:

First, obviously, you're on your own. You pay the full premium, without the help of an employer's sizable contribution. You have no group to protect you from the scrutiny of medical underwriting. And if you don't have an agent, you have to figure it all out for yourself.

Second, individual coverage is insurance, not a benefit plan that offers virtually unconditional coverage. Insurance carriers don't cover anyone for everything. They insure reasonably healthy people against their unknown risks. That's how their plans stay solvent—by having enough healthy people in the plan to offset the cost of covering the sick ones. So when you pick an individual policy, you don't just enroll and go to the doctor. You apply, and the insurance carrier decides whether to accept you.

These differences aside, individual plans are much like group plans. You can get comprehensive coverage through traditional indemnity plans, preferred provider organizations (PPOs), health-care networks, and even health maintenance organizations (HMOs). Many carriers allow you to customize your coverage by choosing a deductible, from as low as $250 up to $10,000. Some also offer separate packages for dental and vision care. You can find short-term plans that provide up to six months of coverage—perfect if you're between jobs or if a child needs coverage between graduation and employment.

Rude awakening: medical underwriting
You apply for coverage by giving the carrier a detailed medical history for each person to be covered. Then an underwriter reviews the history and even may contact your doctors for records and specific test results. The objective: to identify the known risks that you present and decide which ones, if any, the carrier will insure. Remember—insurance is for unknown risks.

A carrier probably will not cover anyone who has a history of major chronic illness such as heart disease, cancer, diabetes, AIDS, or HIV. Pregnant women also may be denied coverage. If you or a family member is considered uninsurable in the marketplace, contact your state department of insurance and ask if it has a health insurance risk pool for people at high risk.

Even if you're insurable, your coverage may be limited by riders. While not so devastating as being denied coverage, getting "ridered" can be startling to people who think they're healthy. A rider is an amendment to your policy that defines your personal exclusions under that policy—in other words, the conditions for which you won't get coverage. Riders usually deal with recurring nonsystemic health problems like chronic back pain or ear infections, asthma, and hemorrhoids. If you have been treated more than once for such a condition during the past three to five years, you can expect a rider on it. That means you'll pay for any treatment or prescriptions related to that condition.

Most riders apply for the life of your policy. If you are "treatment (and medication!) free" for a condition for a number of years, a carrier may remove its rider. It will be up to you to ask to have the rider reviewed.

The good news about medical underwriting is that the carrier does it only once—before you get a policy. You won't be singled out for that kind of attention—and restrictions—again as long as you hold your policy. Even if you get very sick. Of course, if you change carriers, you're in a whole new ballgame, with a whole new set of pre-existing conditions!

Your best approach to underwriting is honesty: Tell all and hope for the best. If a carrier finds out that you lied on your application—and they have very effective ways of doing so—it will turn you down or cancel any coverage you have. If you've had paid benefits, you'll have to repay the carrier. And, you'll find it difficult, if not impossible, to get coverage elsewhere.

    define your

    The lowest
    isn't necessarily
    the best deal.

Insurance carriers
don't cover anyone
for everything.

Individual coverage
is insurance,
not a
benefit plan.
Sticker shock: your premium
If you've had COBRA coverage and paid the full cost of an employer's plan, the cost of individual coverage may come as a pleasant surprise. (COBRA is a federal law that lets some employees continue, at their own expense, to use a previous employer's group plan as individual or family coverage for up to 18 months.) Typically, individual health coverage costs about the same or less than group coverage. That's because underwriting removes many of the very sick people from the pool. Also, individual plans often exclude certain coverage such as maternity, mental health and substance abuse, or prescription drugs. Catastrophic plans even may exclude routine doctors' visits.

All the same, medical insurance is not cheap, especially if you're older or in poor health. As with car insurance, the best way to lower your premium is to insure less: Pick a high deductible or copayment and pay more of your medical bills out-of-pocket. You could cut your premium in half by raising your deductible from $500 to $5,000.

A warning—some carriers guarantee your premium for a year, many do not. That means your premium could increase quarterly or more often, depending on the plan's claim experience. Check the fine print and the carrier's rating history before you apply.

Action plan: going shopping
Buying health insurance is like making any other major purchase. You need to think and act like a consumer.

  • Do your homework. Learn about the individual market, its products and providers. Check the online insurance marketplaces like insweb.com and insure.com. They have background information, news articles, company profiles and ratings, and readers' forums. You also can get preliminary quotes—but don't apply yet! If you find some plans and prices you like, contact the carriers for more details about the coverage and participating providers. Call your state department of insurance for complaint and rating reports on the carriers.

  • Decide what you want. Look at several kinds of plans and deductible levels. Review your medical bills for the past few years to get a rough idea what each plan could cost you in premiums and cost of care. Figure out how much risk you can afford to assume and how much you want to insure.

  • Shop around. Get quotes from more than one carrier on the coverage you want. You may be surprised at the differences you'll find. Remember that the lowest premium may not be your best deal, especially if it comes without increase guarantees or from a small company.
You can save yourself time, effort, and even money by using an independent insurance agent. Agents know what plans are available and can tell you about carriers' practice in pricing and paying claims. They also can help you assess your need for coverage and evaluate your options.

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