Managing personal insurance under health care reform laws

Yesterday marked the five month anniversary of the passage of national health care reform. With little media attention this week, some of the most significant provisions of this year's legal reforms will be in force within the coming month. These rules are primarily designed with the intent of making management of health care easier but also have some consequences not considered by the promoters. In particular, the 2010 changes have significant consequences on those who buy their own health insurance.

• Benefit caps remain - Legislative intentions to eliminate the caps on essential benefits have been set aside for now; mini-med plans may retain the benefit caps if they demonstrate that the change would cause a sharp rise in premium rates. We anticipate that all of the most popular mini-med plans covering more than 1.5 million Americans will meet the requirements for exemption. We anticipate that budget pressures will make this the most popular type of health insurance among working-class Americans who contribute to employer-provided coverage or purchase their own individual coverage.
• Preventative benefits expanded - In-network preventive medical service coverage must now be covered at 100%. This change had the most direct and immediate impact on increasing insurance rates for 2010 since these claims are most likely to be incurred by members.
• Children under age 26 - Under the so called "slacker provision" dependent coverage eligibility is now extended to age 26. Most health plans already made this change early in 2010 in order to retain more members. It is unclear whether a dependant adult in their 20s will be charged the same premium rate as a dependent younger child. A 20 year old typically has higher medical expenses than a younger child. Medical costs of younger adults are rising at a faster pace than those of younger children due to lifestyle-related factors. Since the slacker coverage is optional, there is a built-in bias toward adverse selection; those most likely to incur larger medical expenses are more likely to remain on the parents' health plan while those with no medical issues are less likely to sign up for coverage. If rates are not tiered, then we expect that the rates for all dependent children will increase in 2010.
• Children's health insurance - Pre-existing condition exclusions are eliminated for children under age 19 but provisions in state law have also been added to require parents to add children to the health insurance plan at the earliest possible date. We've covered children's health insurance reform issues in other articles so these are not repeated here.
• Post-issue underwriting eliminated - Insurers are required to verify eligibility and may not rely solely on the statements of applicants. Coverage rescissions prohibited except for fraud or intentional misrepresentation. This will help about 2% of those people who had health insurance cancelled due to ineligibility but it also significantly increases the amount of time it takes to obtain new health insurance. Some insurers estimate that underwriting time will increase from one 1 day to 60 days.
• State regulations - In some cases state regulations further complicate the health reform process. The California Department of Insurance, for example, issued regulations this month requiring health insurance companies to thoroughly investigate the histories of those seeking insurance coverage before accepting any premiums. About 1.1 million Californians covered by individual health policies are immediately affected by the department. The rules affect those applying for coverage through the state health insurance exchange as well as those applying though traditional channels. Changing insurance plans in California could take up to 90 days. Previously insurance companies were allowed to rely on the written statements made by an applicant to determine whether the applicant was eligible for coverage. The new law requires companies to independently verify the eligibility criteria including health history, age, citizenship, residency, eligibility for an employer-sponsored health plan, and sometimes other factors.
• Health Insurance Portability and Accountability Act (HIPAA) issues - Federal law known as HIPAA makes it difficult, tedious and sometimes expensive to obtain medical records to verify insurance eligibility and determine rates. Doctors and hospitals typically require pre-payment of a medical records fee ranging from $35 to $75. An applicant with multiple medical service providers could incur significant fees and delays in the record transmittal. Insurance companies are allowed to charge the insurance applicant for the cost of obtaining medical records but none of the insurance companies we spoke with had announced plans to raise application fees as a result of health care reform provisions.

Freedom Benefits is working with trade groups to ease the transition into these health care reforms. Still, the transition will be confusing and cause problems for some consumers. OnlineAdviser offers these six suggestions to individuals who are shopping for health insurance now in this new health care reform environment:

1. Do not cancel previous insurance coverage or allow the previous coverage to expire until after the new policy has been approved, received and reviewed by you or your insurance adviser. While we understand that many consumers cannot afford to make an additional payment on their former insurance plan - especially when premiums jump sharply - it is important to be aware of the expiration date and the reinstatement deadline (usually 30 days after the expiration date) in order to ensure that the prior coverage is available as a fall-back strategy.
2. Use short term medical insurance for immediate issue coverage while waiting for a new policy to be approved. Short term major medical policies are issued immediately online without the need to check medical history because these polices are exempt from the coverage provisions of pre-existing medical policies. As a result, buyers understand the limitations of this simple form of coverage and fewer disputes over claims. See the listing of short term medical insurance plans available in each state by selecting the state from the map on the FB exchange home page.
3. Collect copies of all of your important personal documents (birth certificate, passport, driver's license, etc.) and all of your personal medical records and keep a secure digital copy available on your home computer. We suggest a passport-encoded PDF. While an insurance company will usually collect its own information, it makes sense to have a copy of these records in the event that a single missing record delays the issuance of insurance coverage. Some health insurance companies like Celtic Insurance, require applicants to provide a copy of their own medical records. Having this information in advance can significantly speed up the application process.
4. Use limited benefit insurance like Core Health Insurance and supplemental insurance like Value Emergency Room and Value 24 Hour Accident Insurance that is exempt from the new regulations. This insurance is meant to provide benefits in addition to coverage provided by major medical plans but are sometimes used by individuals in a pinch to provide some limited coverage when other insurance is not available pr is not affordable.
5. Consider health insurance to be the most important part of your strategy for personal financial security. Avoid learning the hard way that lack of adequate health insurance planning can be ruinous. The new health insurance reform laws will amplify that message and increase the importance of taking individual responsibility for obtaining high quality insurance coverage.
6. Take advantage of free OnlineAdviser enrollment support by e-mail or online chat for enrollment in health plans listed on the insurance exchanges. Consider requesting a paid consultation for more difficult situations where the choice of a specific health plan is likely to impact the overall quality of life and your personal financial security.

Insurance buyers who select long term coverage typically change insurance companies every 2nd or 3rd year, according to Freedom Benefits data collected since 1986. A typical health insurance policy, including short term and limited benefit policies, is in force for less than 13 months. Health reform provisions are likely to prompt members to change coverage more often in the next few years and opt for policies with lower levels of benefits. Applying an estimated cost of compliance of about $200 to all long term policies issued, we anticipate that health reform provisions will rate premium rates by an average of about $20 per person per month.

 Opinions expressed are the sole responsibility of the author and do not necessarily represent the opinion of Freedom Benefits Association or any other person, company or entity mentioned. Information is from sources believed to be true but cannot be guaranteed.