When it Comes to Health Care, You Can Insure a Burning House

Published March 1, 2002

Jane is 58 years old and lives in Florida. She saved up a significant retirement nest egg and decided to take early retirement. Even though she was offered COBRA continuation coverage, she did not act on it.

Now, just a few weeks after her time to sign up for COBRA expired, her doctor told her after a routine check-up that she has become diabetic. Jane tried to buy private, individual health insurance, but discovered she is no longer insurable. She tried to go back and sign up for COBRA, but it was too late.

Jane found out the hard way that she has to go back to work so she can get coverage under a group health insurance plan.

Now consider a different case. Mary is just like Jane … with one important difference: Mary lives in Indiana. Even though her medical condition means she cannot qualify for private individual health insurance, she does qualify for the Indiana Comprehensive Health Insurance Association, or ICHIA.

ICHIA is a high-risk pool designed for uninsured people who are also medically uninsurable. Thanks to ICHIA, Mary qualifies for high-quality, major medical health insurance, regardless of her health. She will pay a penalty for dropping out of the insurance system—her premium will be up to 50 percent higher than for comparable insurance outside the risk pool—but she will not be uninsured.

Risk Pools Work

High-risk pools like ICHIA operate in 28 states. More than 127,000 people are insured by them. Best of all, the pools are usually administered and financed by the private health insurance industry, not government.

According to Communicating for Agriculture’s recent report, Comprehensive Health Insurance for High-Risk Individuals, the typical person insured in a high-risk pool generates $5,272 in annual claim cost. But the average annual premium is only $2,915. The difference—that is, the losses—is picked up and paid generally by the health insurance industry, based on each carrier’s respective market share.

Premiums charged to persons insured in high-risk pools are relatively affordable. Most pool rates are capped at a percentage of the average price charged for comparable coverage by the private market. In Indiana, for example, the cap is 150 percent. So, if the average private rate is $200 per month for comparable coverage, the pool’s rate would be $300 per month. That’s a bargain for people who are both uninsured and uninsurable (and who may not have paid any health insurance premiums for many years).

Most plans in the private health insurance market feature deductibles, copays, limits on certain coverage, and lifetime maximums. The Health Insurance Association of America points out in its Source Book of Health Insurance Data,

“Almost all policies include a deductible, which usually ranges from $100 to $300 for an individual or $500 or more for a family. Most fee-for-service policies reimburse doctors at 80 percent of the reasonable and customary charge (the prevailing cost of a medical service in a given geographic area), and the patient pays the remaining 20 percent.

“Most policies have an out-of-pocket maximum. In a given year, if expenses exceed a specified level, the patient’s coinsurance is waived, and the insurer pays the doctors’ fees in full. Many fee-for-service arrangements cover 100 percent of hospital bills; some reimburse at the 80:20 ratio. Lifetime limits stipulated in a fee-for-service policy sometimes put a ceiling on the total claims paid.”

Risk pools are no different. People can purchase $500 annual deductible plans in 19 risk pools and $1,000 annual deductibles in every pool. Twenty of the states’ plans include lifetime maximums of $1 million or more, five offer plans with unlimited lifetime maximum benefits, and none has less than a $350,000 maximum benefit. Most, according to Communicating for Agriculture, offer managed care options.

None of the plans exclude coverage for preexisting conditions longer than 12 months, and 20 exclude coverage for six months or less. Several of the pools waive this exclusion altogether if the person had recent, prior coverage. And no plan looks back more than six months to define a preexisting condition.

Something about Mary

Let’s take a look at Mary again. She lives in Kokomo, Indiana. She will be able to purchase a major medical plan with a $1,000 deductible for $535.29 per month. There will be no limit on the lifetime maximum benefit. If she had coverage within the last six months, she will not have a waiting period for coverage for her preexisting condition. Even if her prior coverage lapsed more than six months ago, she will have to wait only three months for coverage for preexisting conditions to begin.

The ICHIA major medical plan has coverage for outpatient care, inpatient care, surgery, prescription drugs, ambulance service, diagnostic tests, skilled nursing care, home health visits, transplants, rehabilitation, durable medical equipment, mental health and chemical dependency, physical therapy, speech therapy, occupational therapy, and preventative care. If she were younger, she would even have maternity coverage!

Because Indiana made a commitment to making health insurance available to every citizen, Mary will get the coverage she needs. By contrast, Jane must foot her own bills or go back into the workplace to get health insurance.

Every state should enact a comprehensive health insurance plan for high-risk, uninsured persons. Coverage should be high quality, with rates capped and losses shared by every citizen.

Lee Tooman is vice president of government relations for Lawrenceville, Illinois-based Golden Rule Insurance Company.