Individual insurance: a game of risk

Earlier this year, Lisa Schenk left her job with a management consulting company. As a result, she also began a search for a new health insurance policy.

Although she continued her coverage under the federal law that lets workers temporarily stay on their employer’s policy -- usually for 18 months -- the monthly premium to cover her, her husband and daughter came to $900. Schenk assumed she could easily find something less expensive.

Instead, the 37-year-old Pasadena woman found that a prior miscarriage made it difficult to do so because in insurers’ eyes, she posed a greater financial risk.

It’s a lesson that many other Americans already have learned. About 56 million people do not get health insurance from employers or the government. If they want coverage, they have to brave the individual health insurance market. About 15 million people have found policies this way, but thousands more have been disqualified for having health conditions, sometimes as minor as ear infections or hay fever.

In the last few years, companies have become even less willing to insure anyone who doesn’t have a clean medical history. Experts say that five years ago a company might have accepted 70% of its applicants. Today the figure is closer to 60%.

Schenk was pregnant and knew she couldn’t get a policy because pregnancy is often regarded as a preexisting medical condition, which insurers won’t cover under individual insurance policies. But she was surprised when her pregnancy posed problems for her husband, who also is self-employed.

In California, it turns out, pregnancy also is a deciding factor in whether a man gets coverage in the individual market.

California law requires the father’s insurance company to pay for a newborn’s medical care if the mother has no coverage or terminates coverage while pregnant.

“We are afraid the woman may not have coverage, in which case the father’s plan is responsible for the costs of the newborn,” says Health Net spokesman Brad Kieffer. “Expenses related to premature delivery are among the most costly health-care events in Health Net’s experience.”

A few weeks after her husband was turned down for coverage, Schenk had a miscarriage. Her husband was now eligible, but Schenk had run into another stumbling block in the individual market -- the insurer’s careful scrutiny of her medical history.

During the process of deciding whether to accept an applicant, insurance companies assign debit points, or demerits, for having certain conditions. The more serious the condition, the more points.

Someone with coronary artery disease may get 500 to 600 debit points while a woman who has had a recent miscarriage, as Schenk did, may get 40 to 50. Each company makes its own rules for determining when the total number of debits is enough to deny coverage, charge extra premiums or exclude illnesses people already have.

California law prohibits companies from excluding health conditions or body parts, so in Schenk’s case, Blue Shield offered coverage for a monthly premium that was six times higher than the premium it was willing to charge her husband and daughter (for whom the family accepted the coverage). For $600 a month, Schenk could get her own PPO plan with a $750 deductible, an extra fee of $1,000 for pregnancy-related expenses and 30% co-insurance, meaning she would have to pay 30% of the bill.

She appealed, and Blue Shield reduced its quoted monthly premium to $300. Though the new premium the company offered was the same as she is currently paying for herself alone, she is keeping the old policy for now because she said the benefits are so much better.

“It’s ridiculous to pay more premium for a normal miscarriage,” she says.

But to the insurance companies, it makes good financial sense. They’ve found that women who have suffered miscarriages have, on average, higher medical expenses than those who have not had miscarriages.

Schenk’s experience illustrates the consequences of trying to make insurance available for people in less-than-perfect health -- without making more fundamental changes in the system. California’s effort to protect insurance buyers by requiring the father’s plan to cover newborns and by prohibiting companies from excluding specific diseases may help some people some of the time, but it’s not enough and can even prevent people from getting reasonably priced coverage.

Until the premiums from healthy people in the individual market help pay for those who are sick through some pooling of the risk, people with health problems will continue to run into the same barriers Schenk faced and perhaps go without any insurance at all.

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Uninsured Americans

1976: 23 million

1980: 30 million

1990: 34 million

1995: 41 million

2000: 39 million

2001: 41 million

Sources: National Health Interview Survey, 1953-1976; Employee Benefit Research Institute, 1980; Current Population Survey, 1990-2001.

Trudy Lieberman can be reached at [email protected]. Health Matters appears on the third Monday of the month.