Health Resorces | Individual Health Insurance Primer


A Primer on Individual Health Insurance

Individual Health Insurance Defined:
Individual health insurance is just that; it covers an individual person only. It applies to a single person, to an individual parent and to dependent children. Most people in this country are insured through their place of employment, in either the private or public sector. However, at least five percent of us get our health insurance coverage by purchasing individual policies. Individual policies are marketed and sold according to state regulations and oversight.

Tips on Buying Individual Health Insurance Coverage:
Individual health insurance policies are purchased, for the most part, through licensed health insurance agents or brokers in each state. These licensed agents/brokers typically handle a variety of insurance policies from many different providers so as to be able to pin point the specific kind of coverage for your individual health insurance requirements. These agents/brokers receive a commission from the insurance providers they represent so the buyer does not have to compensate them for their services. To find a qualified, licensed agent/broker who sells individual health insurance policies, simply search the internet or else

Agents and brokers also provide service on the policies they have sold, and can help you process claims or with anything else you need regarding your policy. The insurance companies for which agents and brokers sell coverage pay them a commission for their work, so you will not be charged a direct fee if you want to use the services of an agent or broker. To find a qualified, licensed agent or broker near you who sells individual health coverage, simply go onto the website of the National Association of Health Underwriters (www.NAHU.org) and click on "find an agent".

The Difference Between Individual Health Insurance and Group Health Insurance:
Individual health insurance differs greatly from group health insurance. The biggest difference is that group insurance is offered through an employer at a place of business. Typically, group health insurance benefits are more extensive than those offered through individual plans. Such benefits like maternity coverage, substance-abuse treatment may be "standard" in group plans but not included in most individual plans. Of course, individual consumers can add extra areas of coverage by paying more on their police. This is known as an "optional rider."

Since price is usually of key concern to individuals paying for their coverage from their own pocket, their policies tend to be simpler that group plans. Also, deductibles (the amount you pay before benefits kick in) and cost sharing (fees paid directly to medical providers) tend to be higher as well. Providers of individual policies are also more limited in terms of their ability to spread risk. Applicants must go through greater scrutiny as to their overall state of health and must fill out a medical questionnaire. Usually, a provider can choose not to cover individuals with serious pre-existing conditions such as cancer or HIV.

Determining Premium Rates:
In most states, you need to provide thorough health information about you and your family when applying for individual health insurance coverage. Insurance companies then use this information to arrive at rates. At times, additional clarification will be required from the applicant or the applicant’s doctor.

If there is any question as to the potential risk of an applicant, the insurance provider will assume that any missing of incomplete information is negative rather than favorable and thus be more conservative in the way it underwrites that individual’s policy.

Once the applicant’s health status is determined, the insurance carrier assigns that person a rate class which is then placed into a pool of other applicants who have a similar health status. That rating class pool then determines the individual’s premium payments....not the applicant’s individual claims.

Coverage of Pre-Existing Medical Conditions:
Most states allow insurance companies to decline coverage to individuals with severe pre-existing medical conditions. However, most people with problematic medical histories still qualify for individual coverage. "Adverse selection" is when people wait till they have a medical problem before trying to purchase health insurance to cover that problem. This creates a challenge for insurance companies that specialize in individual coverage since it limits their ability to spread risk. So, if the insurance company finds a history of pre-existing conditions, it can elect to withhold coverage of certain conditions for a specific period of time; this is called an "exclusionary period". In other words, there is a waiting period the applicant must go through. The duration of the exclusionary period can vary from state to state.
To find the specific for a specific state, click on this link: NAHU's Health Care Coverage Options Database.

To help prevent adverse selection, insurance companies are allowed to look back at your medical history for pre-existing conditions and may choose not to cover certain conditions for a specified period of time. This is known as an exclusionary, or pre-existing condition, waiting period. The amount of time an insurance company can look back at your medical history, and the length of time an exclusionary period can last, vary on a state-by-state basis. NAHU's Health Care Coverage Options Database will tell you what the requirements are in your state.

Some states allow for a credit toward an exclusionary period if the applicant has had prior health insurance coverage within a prescribed time period. The amount of the credit against the waiting period is usually in direct proportion to the duration of the prior coverage.

Insurance companies can also issue "elimination riders" to those with pre-existing medical conditions. Elimination riders permit the insurance company to provide the applicant with preexisting condition coverage...but leave out coverage of the specific condition. An applicant can opt for a policy that includes the specific condition with a waiting period, but must then pay a higher premium. Buying Health Insurance with a Very Serious Pre-Existing Condition: Most states can reject an applicant for individual coverage if you there is a very serious medical condition, such as HIV or cancer. However, there is usually a way for uninsurable people to gain some sort of access to individual health insurance coverage. Thirty-three states offer what’s known as "high-risk pools" for this purpose.

Twelve states offer other routes to individual coverage for uninsurable people, such as requiring all health insurance companies to proved individual policies without regard to medical history through a designated health insurance company of last resort. And still, five other states have no way whatsoever of providing individual health insurance to those with catastrophic medical conditions.