ANTED: A healthy individual, gainfully employed. Prefer someone with
upstanding morals and a clean driving record. Smokers will be
considered; daredevils may want to look elsewhere.|
Just as individuals have an image of their ideal match, so do health insurance companies. As they evaluate applications for coverage, insurers assess a person's health and lifestyle against their own standards: their underwriting guidelines.
If you're covered by a group policy--as are 90% of the nation's insured--you may simply have filled out an application and, voila!, you are covered. But if you've applied for an individual health policy, you've probably come under closer scrutiny because you have no co-workers to share the risks and the costs.
What qualities do insurers look for? Although individual companies regard their guidelines as trade secrets, most health insurers review the following categories as they decide whether to extend you coverage.
|The bottom line|
Insurers operate on a baseline system. They establish normal levels of risk for a person's age, height, and weight. At this baseline, applicants pay standard premiums.
More than 90% of applicants pay a standard premium, says Dr. Donald Chambers, senior vice president and chief medical director of Lincoln National Reinsurance Co. and Lincoln National Corp. in Fort Wayne, Ind.
Then, insurers look for risk factors, called impairments or detriments in the industry. "Detriments can translate into extra premiums or the use of waivers to exclude coverage for certain medical conditions or avocations," says Harvie Raymond, assistant vice president and director of insurance products and operations for the Health Insurance Association of America in Washington, D.C. "At some point, the insurer will say the detriments now require a 20% or 50% increase in premium. If the detriments increase further and you go up to two to three times the standard premium, generally your application will be declined."
|An excellent way to cover health insurance co-payments and deductibles without denting your cash flow is to keep funds in your credit union savings.|
|So what are impairments? "They're any disease, disorder, characteristic, or condition that might affect the applicant's relative level of mortality risk in relation to others of the same age and gender," says Chambers. Insurers lose money if the level of claims exceeds the level that the insurer assumed in establishing the premium or rate. As a result, when companies underwrite, they evaluate all the risk factors--even nonmedical-related risks--they consider applicable. "Insurers are looking for those factors that are likely to translate into early claims and could have an effect upon overall premium structures," Raymond says.|
|To your good health|
To guard against surprise impairments, insurers want a complete picture of your health, past and present. When you list your medical history on an application, you also must sign a statement that the information you've provided is true and complete. For example, if you don't mention you have asthma, and an asthmatic attack puts you in the hospital six months later, the insurer can cite misrepresentation on your behalf. If it catches your omission within two years and the omission is relevant to a subsequent claim, says Raymond, the insurer can withdraw coverage.
To verify your information, insurers may check your application against your medical records and reports held by the Medical Information Bureau (MIB). This nonprofit organization provides data about individuals to its 680 member insurance companies that use it to process applications and prevent fraud. "MIB reports can't be used to rate someone," says Chambers. "Rather, they serve as an alert that there may be unadmitted information and prompt the recipient member [the insurer] to do an especially thorough job of underwriting."
Surprisingly, your line of work may be seen as an impairment. Most desk jockeys have nothing to fear. But entrepreneurs and self-employed individuals often have difficulty buying health insurance. "Because many artists work out of their homes, they are not covered by workers' compensation," says Lenore Janecek, author of "Health Insurance: A Guide for Artists, Consultants, Entrepreneurs and Other Self-Employed" (Americans for the Arts, publisher; ISBN 1-879903-11-3). "The insurance company would be responsible for the client 24 hours a day."
Understandably, high-risk professions such as loggers and test pilots often can't buy insurance for work-site injuries. But some insurers exclude occupations that appear to have little on-the-job hazard. The Texas Office of Public Insurance Council (OPIC) reviewed the guidelines of more than 100 companies, representing 87% of the Texas health insurance market. A little more than 10% of the companies surveyed declined doctors and other medical professionals and lawyers.
The OPIC study also found that 22% of companies required applicants to have active full-time employment; they considered it a measure of health and stability. One company's guidelines stated: "Unemployed or laid-off individuals are more apt to take time out for surgery or hospital care, and will develop more claims per premium dollar than employed individuals."
|Tell us about your
If your idea of fun is skydiving, mountain climbing, or rodeo riding, don't expect your health insurer to cover your slips, splats, or falls. People with daring avocations are at greater risk to have more frequent and more serious accidents, Raymond says. As a result, insurers may charge you higher premiums or issue a waiver, which excludes liability for any loss you incur while participating in your daredevil exploits.
Lifestyle perhaps is the broadest and most criticized category of underwriting guidelines. If a person drinks heavily, smokes, or drives recklessly, statistics prove that individual is a greater risk. But do income, social status, and national origin influence a person's risk rating?
Some insurers think so. The OPIC study of Texas insurers found that 12% of the companies denied low-income applicants, and 12% evaluated a person's reputation and choice of friends. Fifteen companies restricted coverage for foreign nationals, with two denying applicants who were not fluent and literate in English.
Rod Bordelon, OPIC executive director, questions the relevance of those standards. "If the insurance company can show it has a basis in risk, then it's understandable it would be a guideline," says Bordelon. "To look at a medical history as a predictor of future illnesses is understandable. But these categories of income level and reputation are standards that don't seem directly related to risk."
|Law and order
Some states have tightened their rein on health insurance underwriting guidelines. Three years ago, the Texas legislature passed standards requiring that guidelines "must be based upon sound underwriting and actuarial principles reasonably related to actual or anticipated loss experience." The Kansas legislature prohibits insurers from considering whether a person is a victim of domestic abuse. New York and New Jersey virtually have eliminated guidelines in some cases by establishing policies with "community standards," under which everyone pays the same rate regardless of age or health. And in Florida, insurers' underwriting guidelines are part of the public record.
"Public disclosure of guidelines would be the best medicine," says J. Robert Hunter, director of insurance for the Consumer Federation of America in Washington, D.C. "Consumers can educate themselves about underwriting guidelines only if they're public." As of last year, insurers must notify applicants who were turned down because of information the MIB supplied. Rejected applicants can request and review their MIB report free to verify the information's accuracy. Still, many people never learn why they were denied coverage; the rejection letter just states the applicant didn't meet guidelines.
If you have questions or suspect wrongdoing, first call your insurance agent or company. If you're still unsatisfied, call your state Department of Insurance. State insurance commissioners act on behalf of consumers by providing information and protection from fraud. With their help, you can determine if your insurer has lived up to your standards and still is a good match for your insurance needs.
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