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The evolution of individual health insurance

by Tony Novak, CPA, MBA, MT
, revised 11/29/2011

Individual health insurance policies have changed dramatically over the last decade. Yet the changes would not be visible to most people until they actually need to enroll in such a plan. Everything about these insurance plans has changed – including the eligibility requirements, pricing, the type of coverage available, the enrollment method and distribution of the policy itself.

A decade ago, individuals who purchased their own health insurance selected plans that were very similar to employer-provided health plans. Most insurance agents offered these plans to customers in their own community. The coverage was renewable for as long as coverage was needed and covered all of the same expenses. Today, buyers would balk at the cost of that type of insurance plan – easily more than a thousand dollars per month for a typical household.  Less than one in ten buyers select this type of plan now.  Modern individual health insurance plans are now very different from typical group health plans.

Today’s most popular health insurance plans offer coverage for a limited time, typically six months or a year. The plans usually have high deductibles averaging $500 to $5000. Items like dental and prescription drugs are more effectively covered through a discount plan rather than through a basic insurance plan. These plans do not cover the cost of pre-existing medical conditions and do not cover normal pregnancy expenses.

A federal law known as HIPAA pushed states to develop assigned risk health plans that serve as a safety net for those who are not eligible for regular individual health plans. These plans cover the cost of pre-existing medical conditions and maternity costs as long as the member can provide a “Certificate of Creditable Coverage” to show continuous coverage. Otherwise, a waiting period of up to 18 months is required. We suggest that the waiting period may be fulfilled under a less expensive catastrophic plan.

While it is easier to find health insurance today, the cost of these plans is not affordable to most middle income Americans without the need to liquidate their assets. In fact, the cost of health care for individuals with chronic medical problems is at record high percentage of household income and our national budget. Individuals without adequate income or assets to purchase health insurance are eligible for state assisted health insurance plans. As a result, health insurance affordability is not a problem for affluent or poor applicants, but is a significant burden for middle class applicants who are understandably not willing to spend down personal assets and re-allocate income to cover the cost of their health care. This disturbing trend is expected to get worse before it gets better.

Health insurance companies have responded to the trends by decreasing the number of long-term health insurance plans and modernizing their enrollment systems. The application process is much easier today that in the past and over 70% of today’s individual health insurance policies are issued online rather than through paper enrollment forms. It takes less than five minutes to obtain prices and apply for coverage. Eligibility is determined by answering a few very simple “yes” or “no” health questions. The policy is issued immediately and coverage can be effective at midnight after the application is compete. Members can print out the policy and ID card immediately or request next day mailing. Most buyers elect to have premiums paid electronically through a bank account or credit card so there are fewer problems with lapsed coverage for non-payment of premiums.

One persistent problem is the marketing of bogus or misleading health plans. These scams are typically sold on the Internet or through flyers posted in retail places throughout a local community. The common thread is that these plans promise generous benefits at a too-good-to-be-true price. Victims do not learn about the plan’s shortcomings until after a claim has been incurred. Applicants who use a reputable enrollment service like Freedom Benefits will avoid these problems.

In summary, high quality individual health insurance is actually easier to find and is more affordable now than in the past. These plans are designed to cover only catastrophic risks rather than routine medical costs. A safety net is provided through state-sponsored plans for high risk and low income applicants to make sure that everyone has access to some type of health insurance coverage.

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