Health Coverage for All
How to find an affordable policy even if you're not healthy.
By Kimberly Lankford, Contributing Editor
From Kiplinger's Personal Finance magazine, July 2006
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They chose a policy with a $2,500 deductible and are making tax-deductible contributions to a health savings account to pay for out-of-pocket expenses. "All we need is disaster insurance in case something really bad happens to us," says Noreen. They've had few medical expenses since they bought the policy, so they're amassing a pot of cash they can use over the next few years, or even after they qualify for Medicare.
It's better to choose a high-deductible policy rather than a bare-bones plan with a lower deductible and a lower annual cap on coverage. A policy with a lifetime coverage cap of $5 million or more is usually safest, says Barbara Bachelder, a financial planner in San Rafael, Cal. Some policies cap their annual payouts at $200,000, which could have fallen significantly short of paying the bill for Bachelder's kidney transplant seven years ago.
Bachelder is fortunate to have a group policy through her husband's employer. Regardless of where you get coverage, she recommends that you include out-of-pocket expenses in addition to premiums when figuring the cost of insurance, especially if you have any medical conditions. Bachelder's insurance plan is comprehensive and expensive, but she takes drugs that cost thousands of dollars each month. "For me," she says, "it makes sense to pay more in premiums in return for better benefits."
The Massachusetts experiment
All of the strategies outlined here are useful in states where insurers can raise your rates or deny you coverage based on your medical condition. A handful of states -- notably Massachusetts, New Jersey and New York -- guarantee that you can buy coverage regardless of your health and you can't be charged more because of it.
That sounds good, but so-called guaranteed-issue coverage can cause another big problem -- namely, very expensive insurance for all state residents. That's often compounded by state mandates that insurers cover a long list of medical procedures -- including, in Massachusetts, in vitro fertilization.
Consider this: Cheryl Crawford, who suffers from a rare blood disease and would be rejected by most insurance companies, found a policy in California that costs $484 per month. In Massachusetts, where insurers must charge everyone the same price regardless of their medical condition, even the healthiest person would pay nearly that much.
Massachusetts has been in the spotlight since it passed a new health-insurance law designed to reduce the number of uninsured individuals by requiring state residents to have coverage. Low-income households will receive government subsidies, but middle-income residents still face some of the highest rates in the country for individual health insurance.
For example, according to a recent study by eHealthInsurance.com, a family of four in Boston pays at least $865 per month -- or more than $10,000 annually -- for a policy with a $2,000 deductible and 20% co-insurance (meaning the insurer picks up 80% of a claim after the deductible is met). A family would pay $247 monthly for a similar policy in San Francisco and just $194 in Des Moines. Individuals in Massachusetts now pay $350 to $500 a month for single coverage, says Julie Jennings, a health-insurance broker in Dartmouth, Mass., and president of the Massachusetts Association of Health Underwriters.
Because of high premiums, healthy individuals often decide to forgo insurance because they know they can get coverage if they become ill. "We've created a young population that sees no value in insurance," says Jennings. That means insurers have been losing some of the best people in their risk pool, so there are fewer healthy individuals to help subsidize the cost for those who are sick.
To get more healthy people into the pool, the Massachusetts law, among other things, penalizes residents who don't buy coverage and lets dependent children stay on their parents' plan up to age 25. But it doesn't eliminate the guaranteed-issue requirement, so it's not clear whether prices will come down enough to make the plan a success. "We have a long way to go," says Jennings. For more on the Massachusetts plan, read the analysis at Kiplinger.com.)