Updated August 15, 2006

Tips for Buying Health Insurance

by Gerald L. Mummey, C.L.U.

In some states, the minimum group size for automatic acceptance may be mandated at five participants or even fewer. In Maryland, for example, a "group" of one is accepted without question during two annual open enrollment periods, as long as the applicant qualifies as self-employed. The same guaranteed issue privilege is extended to the self-employed person's spouse and dependent children. Not surprisingly, otherwise uninsurable residents of nearby states who qualify as self-employed have relocated to Maryland solely to acquire group medical insurance.

Individual policies, with few exceptions, require all kinds of health questions. Rarely will a person with Type 1 diabetes pass a company's underwriting evaluation process for individual coverage. Even a person with Type 2 diabetes may have to accept a waiver for anything related to his diabetes as a condition of acquiring coverage.

While group coverage may be easier to get, however, one insurance myth that deserves being put to rest is that group coverage is always less expensive than individual coverage. Often, it is not. Group premiums are generally based on the composite average age of the insured employees, the claims history of that group or industry, and the benefits selected. If a 20-year-old were to join a firm with nine other employees, all over age 50, and choose to join the company's group insurance plan, he would probably pay the same rate as the other, older employees. If he purchased an individual policy, he might pay half the group rate. That's because individual policy rates not only take into account the applicant's age, but also his health history, height and weight, tobacco or alcohol use, as well as other personal considerations. Positive responses to health questions can favorably affect the premium rates an individual is charged.

Having diabetes, however, is not considered a positive response. So if the same 20-year-old employee had diabetes, the group plan rate might be a bargain. It's important to remember, however, that group rates are not static: At each anniversary of the master plan, both premiums and benefits may change.

Acquiring group medical coverage at affordable premiums is a concern even for the healthiest applicant. If one cannot pay the premium, it doesn't matter how good the insurance plan is. But annual insurance premiums—no matter how unaffordable they may appear—pale in comparison to the cost of a single day of inpatient care in a hospital. Who would imagine that a simple hip replacement, with a hospital stay of three days, would cost $50,000? Or that minor outpatient surgery could run $4,000 or more?

Self-funded plans
People who purchase medical coverage through an employer or union may encounter a type of medical coverage called the self-funded plan, in which the employer or labor union actually self-insures portions of the claim(s) and purchases an "excess" policy to cover medical bills that exceed certain limits. By paying small claims (such as the first $1,000 of a person's annual medical bills), employers can reduce total premium outlay in the same way as someone who purchases an automobile policy with a $1,000 deductible does. Typically, only larger organizations offer self-funded plans, but it's not unheard of for self-funded plans to be offered to groups as small as five or ten people.

Self-funded plans are generally cheaper than other types of plans, but they may present a threat to a person with diabetes because they may not be subject to the insurance laws of a particular state. Since only the "excess" coverage is considered to be insurance, the designers of the plan can tailor the primary benefit formula as they choose, with little regard for the state-mandated safeguards that normally govern medical insurance.

If given a choice between enrolling in a self-funded plan or some other type of plan, a person with diabetes should carefully examine all the provisions of the self-funded plan related to preexisting conditions and benefit limitations. (A preexisting condition is generally defined as a physical or mental condition that was diagnosed or treated within the 12 months prior to the date of enrollment). If he doesn't, he may find himself up the proverbial creek at claim time.

Also in this article:
Health Insurance Resources

Gerald Mummey has been a Chartered Life Underwriter since 1972 and is past president of both the Baltimore Health Underwriters Association and the Maryland Association of Health Underwriters.

More articles on Money Matters

Statements and opinions expressed on this Web site are those of the authors and not necessarily those of the publishers or advertisers. The information provided on this Web site should not be construed as medical instruction. Consult appropriate health-care professionals before taking action based on this information.