By Gerald L. Mummey, CLU | August 15, 2006 12:00 am
No insurance company is eager to insure the health of people with diabetes. In fact, they do so only when forced by competition or political dictate. Whenever possible, insurance companies attach restrictive diabetes riders, exclusions, and waiting periods to limit or eliminate their financial exposure.
Who can blame them? People with diabetes have more frequent and extensive medical claims than the general population. It’s not the costs of insulin, syringes, or blood tests that alarm insurance carriers. Rather, it’s a person’s long-term risk for serious diabetic complications — such as blindness, cuts that won’t heal, or circulatory problems — that can be hazardous to an insurance company’s financial health. While a person with diabetes in his 20’s or 30’s may be as claim-free as any other healthy person that age, the prospect of future medical problems is more than just a possibility; it’s a probability. And since insurance companies deal in probability, people with diabetes represent potentially devastating financial losses.
Even under the best of circumstances, it’s not easy for an insurance company to earn a profit from medical insurance. Hospital beds that not so long ago rented for $50 a night now cost thousands, miracle drugs priced at $100 a pill are commonplace, a simple appendectomy costs several thousand dollars, and there’s no end to this trend in sight. Insuring people with diabetes only adds to a company’s problems.
Along with the escalation of medical costs, adverse federal and state mandates have caused hundreds of commercial insurance carriers to leave the marketplace altogether. What remains is a sellers’ market in which the consumer has very little room to negotiate. The few companies that continue to underwrite medical coverage are very selective as to whom they will insure and for what types of medical benefits.
Until a cure for diabetes is found, obtaining decent medical insurance coverage will continue to represent a hardship for those who have it. Nevertheless, there is health insurance available — if people take the time and trouble to learn a few ground rules of insurance law and company underwriting practice.
As odd as it may seem, insurance companies don’t have the final say in what is offered for sale. Except where there is overriding federal legislation, each state determines what is and is not marketed to its citizens, and there is very little uniformity between states. Insurance plans sold in Idaho may not be available in Illinois or Indiana. What is considered a routine medical procedure in one jurisdiction might not be covered at all in another. A person with diabetes may have to fight like the dickens to get an insulin pump in one state but not in another.
Barring any conflict with state or federal statute, the person who decides what an insurance company may or may not sell within a particular state is usually an individual known as the insurance commissioner. In some states, the commissioner is elected; in others, the job is a political appointment. Unless challenged in court, the insurance commissioner’s authority is absolute when deciding what may or may not be marketed within his jurisdiction. He determines what may be sold, by whom, at what price, and under what circumstances.
The commissioner is often regarded as a pain in the neck by insurance companies, but he is possibly the best friend a person with diabetes can have when a medical insurance claim is denied. Learn his telephone number; he is the first and best advocate a person with a chronic medical condition can have when dealing with a recalcitrant insurance company claims department. (The commissioner may be listed in the blue, government pages in the phone book. If not, call your state’s insurance department for his number, or go to the Web site of America’s Health Insurance Plans, formerly known as the Health Insurance Association of America, at www.ahip.org.)
A person with diabetes is generally better off covered under a group plan issued through an employer or union than under an individual plan. Because of the large number of premium dollars involved (the amount you or your employer pays, usually monthly, for health insurance coverage) and the increased competition for group accounts, insurance companies tend to relax underwriting standards and offer higher benefit limits for groups. Health questions are rarely asked for groups with 10 or more eligible participants.
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?
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.
There are still a few indemnity carriers who issue traditional hospital-medical plans and major medical plans to either individuals or groups. Indemnity plans reimburse, or indemnify, the person for medical bills up to some stated dollar amount or percentage of the total bill. However, not all bills are considered reasonable, and amounts in excess of the insurance carrier’s limits for what is reasonable become the person’s responsibility. Most indemnity plans permit the insured person to be treated by any licensed medical practitioner.
PPOs. Indemnity plans that reward a person for seeking care from certain providers are typically referred to as preferred provider organizations (PPOs). Participating practitioners agree to accept a pre-determined fee schedule as total payment and not to charge more than that amount to a person covered by the PPO program. This doesn’t mean, however, that a person pays nothing for services rendered. Normally, the person pays an out-of-pocket expense equal to a small dollar amount or percentage of the total bill. For example, if the PPO fee schedule recognizes $100 for a specific procedure and pays 90% of that amount, a person would pay $10, the carrier, $90. If the practitioner’s normal fee for that procedure were $120, he would have to accept the $100 as payment in full. Another person with a different type of insurance would be billed the full $120.
In exchange for the discounted rate of payment, the PPO physician is assured of at least partial payment of his bill and a continual flow of new patients referred to him by the carrier’s directory listings.
HMOs. Unlike PPOs, health maintenance organizations (HMOs) actually employ the medical practitioners and require that all but life-threatening medical emergencies be treated by one of their own providers at one of their own medical centers. Some hybrid HMOs permit their physicians to treat people not in the plan, but in their original form, HMOs hired doctors and paid them a salary to treat only HMO members.
Establishing a medical center can be very costly for HMOs with relatively few members, so many small HMOs contract with existing practices to provide care to HMO members at set rates while treating non-HMO members on a fee-for-service basis. It is not uncommon to find a doctor or an entire medical practice representing several HMOs and at the same time, being an active participant in several PPO plans.
Some states now mandate that HMOs compensate nonmember physicians for at least a portion of the bill when they provide services to HMO members. In those states, the distinctions between PPOs and HMOs have become so blurred that it is often difficult for consumers to know which is which. In many cases, it makes very little difference at claim time since both PPOs and HMOs must answer to the same commissioner if a claims dispute arises.
People with diabetes who have successfully obtained a good group insurance policy need not allow their coverage to lapse if they leave their employer. A federal law called the Consolidated Omnibus Budget Reconciliation Act (COBRA for short) requires employers with more than 20 employees to offer most terminating employees the option to continue their group medical benefits for up to 18 months (in some cases, 36 months). The participant will undoubtedly lose the employer’s premium contribution (if any) and may be surcharged up to 2% over and above the actual premium, but a terminating employee cannot be refused continuation of insurance (unless he was terminated because of fraud or other criminal acts).
While COBRA was a real breakthrough for employees, it has its weaknesses. For one thing, small employer groups (20 employees or less) are exempt from the law, and COBRA makes no provision for continuation of coverage if the employer cancels the group plan. Obviously, if an employer discontinues the master group policy, there is no way an individual subscriber can maintain coverage under it.
Congress addressed some of COBRA’s shortcomings by enacting the Health Insurance Portability and Accountability Act (HIPAA). Among its provisions, HIPAA protects the rights of persons not protected by COBRA to continue their insurance coverage. If a person leaves his job or if his employer discontinues the group plan, HIPAA provides the guaranteed right for him to purchase an individual (non-group) medical insurance plan, assuming he meets the law’s eligibility requirements.
It’s important to note that the individual insurance policies whose purchase HIPAA guarantees are not the same as conversion policies, which are group policies converted to individual policies. Insurance companies have generally always offered conversion policy coverage to terminating employees and their dependents if they applied within 30 days of termination. However, the benefits available under most conversion plans are not nearly as extensive as those included in individual plans offered to a healthy buyer. Conversion plans are guaranteed to be renewable, but if a person does not choose to renew, HIPAA will not provide protection to switch from one individual plan to another.
HIPAA allows a person to purchase the same quality of coverage that would be offered to applicants capable of passing even the most demanding of insurance exams. However, while a person’s application won’t be rejected because of health problems, insurance companies can charge higher rates (with the state’s approval). Nevertheless, HIPAA is a real boon for those with medical problems: If a person is able to secure coverage under an employer-sponsored group medical plan, he doesn’t ever have to be without medical insurance again, assuming he continues to pay premiums.
As stated earlier, people with diabetes are generally better off covered by a group plan, if one is available, than with an individual plan. It is usually far easier to qualify for group coverage than for an individual policy that investigates health history. Depending on the plan and the state, the group plan may impose few (if any) preexisting conditions, exclusions, or extensive waiting periods that are common with individual policies.
A person with diabetes whose employer or union offers a variety of coverage choices may have to evaluate the pros and cons of each plan before deciding which is best. For example, people who live in large urban centers with several participating medical centers may want to explore HMOs. Generally speaking, HMOs cost a person less in out-of-pocket charges at claim time than either indemnity plans or self-funded plans. But HMOs may have more expensive premiums, and they may require a person to change from his current physician to a plan physician. That factor alone may decide the question.
Indemnity plans, including PPOs, generally give a person more freedom to choose his care givers and save him a few dollars in the premium outlay. The tradeoff, however, is that the insured person pays a higher proportion of doctors’ and other providers’ fees at claim time.
As for self-funded plans, most of them operate in the same fashion as PPOs and traditional hospital–medical programs. Self-funded plans offer a person more choices of providers, but at the same time, they encourage people to seek out certain practitioners by decreasing the person’s out-of-pocket share of the bill. And don’t forget that self-funded plans may not be regulated by the state’s insurance commissioner and that benefits that are common to traditional medical insurance plans may not be available to a person covered by the self-funded plan.
In summary, there is no such thing as a perfect medical insurance policy. Proponents of socialized medicine may disagree and point to Canada or Britain as having a perfect system, but a close examination of either system inevitably reveals some cracks. For now, American medicine remains a private, open-market enterprise, and the best method we’ve developed to pay those medical bills is adequate, private, medical insurance. In the end, while no medical system or medical insurance policy is perfect, any policy is better than no policy for people who have diabetes. For more information, see “Health Insurance Resources.”
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