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How to Buy a Health Insurance Plan - A Consumer's Guide

C. Dean Richard, JD, MSBA

About the author: This article has appeared on numerous internet sites. Mr. Richard is a seasoned veteran of the health insurance business, having been contiuously licensed since 1980. In addition to his insurance background, he holds a law degree (although he does not currently practice) and a Master's in Financial & Tax Planning.

1. Check license status & financial condition of the insurance company.

Check with your insurance commissioner's office to ensure that the company is currently licesned. Check with the A.M. Best Co. for its current ratings. Best is the only independent rating company that analyzes each and every insurance company.

At a minimum, most experts recommend to limit your options to companies that have a minimum rating of A-excellent from A.M. Best. But you can't rely solely on ratings either. For example, we know of a company that once had an A rating that subsequently went into receivership. Remarkably, this company was allowed to continue to do business in some states. In those states, the insurance commissioner's office would not disclose the receivership because it was in another state!

Also beware of "new" insurance companies. Often, a "new" company that doesn't have any A.M. Best rating will try to use this fact to their advantage by suggesting that they anticipate to have a rating review within 3 years!

You have to do your homework folks!! Do your own research! Do NOT rely on the agent or representative to share negative information with you!!

BBB? On a related point, I'm constantly amazed at how people turn to the BBB for help with an insurer. Folks, the Better Business Bureau is completely impotent with respect to insurance companies. It follows that the BBB should be classified as irrelevant when it comes to checking out a health plan! Health insurance is a regulated industry--contact the regulators to check on the legitimacy of a company!

2. Don't focus on the "little stuff."

Focus on the "BIG stuff." It's not the little stuff that can wipe you out--it's the BIG stuff! So why focus on the little stuff, like copays for Rx drugs or Dr's visits?

You don't need insurance for a flat tire on your car insurance, right? So do you really need to have some little "co-pay" just to go to the Doctor? You know, if you had no insurance at all, you could easily pay all the doctor's visits you'd ever need--with the premiums you saved from buying the insurance! What this demonstrates is that you really don't "need" insurance for Dr. visits--in fact, you don't "need" insurance for any expense that you could actually pay for yourself in the absence of insurance.

Shocking! Discover the true cost of a $20 copay plan in my new Report (click link)

Therefore, carefully consider the maximum you could comfortably pay out of your pocket should medical expenses arise, and then purchase an insurance policy design around THAT figure. For example, if you could comfortably afford $5,000, then a policy that pays 100% of covered expenses after a $5,000 deductible would be a nice fit. If you "buy down" the deductible to say, $2,000, you'll probably pay an additional $2,000/per year in premiums--and all of that money is GONE if you don't have a claim--you only get it back if you DO have a claim in excess of the deductible! Doesn't it make more sense to "bet" on being healthy, instead of betting on "getting sick" or "having a big accident"? Yet, this is precisely what you do when you pay extra money just to buy a "lower deductible."

3. Avoid plans with "internal limits" on high-ticket items.

For example, if a plan pays "up to" $600/day for intensive care, then that plan LIMITS your coverage to $600/day, regardless of what you are actually charged. A plan such as this is out of date on the day you buy it--and it only gets more out of date with each passing day!

Given the choice, it is better to have a plan with no internal limits but with only $250,000 lifetime maximum coverage, than to have a plan with $5million lifetime coverage but with so many internal limits that only 30% or maybe 40% of a large claim is actually covered (see example above). To be clear, your best option is to have a policy with a large lifetime maximum and no internal limits, or at a minimum, internal limits found should be universally applied from plan to plan. This is a critical point!!

Post healthcare reform note:
In a short time, we anticipate that the cost of quality health plans will soar through the roof, thanks exclusively to so-called healthcare reform. For example, reform mandates that plans cover all expenses related to preventative care. This could mean that even OTC aspirin would be paid by the insurer at 100% with no deductible or copay. This feature alone could account for 30% to 50% increases in premiums. Then in 2014 when "guaranteed issue" kicks in, Katie bar the door! You ain't seen nothing yet. We reasonably anticipate that as many as 60% to 80% of people who carry health plans will have to drop them due to outrageous expenses.

As an alternative, limited benefit plans may become the new rage. At least until Congress wakes up and reforms the reform package.

4. Avoid plans with excessive limitations and/or exclusions!

In fact, I advise that you read the exclusions and limitations list FIRST because whatever you find there is automatically NOT covered. Examples of things to look for include: 6 month waiting period on certain things (it is irrelevant that you have never had these things in the PAST--you're not buying insurance for stuff you've already had in the past!); daily or per diem limitations on benefits; limitations on number of surgical procedures or number of physicians allowed, no coverage for illness for a certain number of days; no coverage on HIV/AIDS, regardless of contraction method, etc.

5. Avoid plans with hefty "sign-up" and/or on-going monthly "association dues" or plans marketed as being something "special" for the self-employed.

FACT: There are no"special plans" just for the self-employed, period! In fact, anyone can join those association plans if they are willing to pay the association fees.

Many plans are now marketed through nationwide associations--and that in and of itself is not necessarily a bad thing. Insurance companies are able to keep premiums down by by-passing certain state mandated benefits with assocation plans in many states--which is usually a good thing as long as you don't happen to really, really need those particular mandated benefits (and if you do really "need" them, then you probably aren't even insurable in the first place).

What you want to avoid is a plan marketed as being some kind of "special deal" for the self-employed where the representative spends a majority of the time harping on the "benefits of joining the association." If you are looking for such an association, fine and dandy, but if your primary intent is to purchase a good solid health plan, then be leery of plans where the representative can't provide detailed answers to the health plan and instead trys to re-focus your attention on those yummy-sounding "association benefits."

One tell-tale sign to watch for: An agent who suggests several different "add-ons" to go along with the basic plan. A good solid health plan will not few if any "add ons" available--because everything that should be covered is already included in the one plan--subject to the one plan deductible! This is a very easy red flag to identify!

TIP: If you are speaking with a representative of an association plan, ask the representative how long he/she has worked for that company! Ask how long they have been in the insurance business. Ask how many clients they have! You will be amazed at the answers, but you must ask!!

6. Avoid any plan where the agent/representative seems to suggest that any of your pre-existing health conditions will be accepted without question and without additional premium or where the agent states that their plan only increased by 5% over the past 2 years (or anything similarly ludicrous).

Many times, these representatives actually get paid per application once the application is turned into the company--it is in their best interest to simply get an application signed and submitted with a check. Your best interest is...irrelevant to these agents. In fact, they do not deserve to be called agents because they are undermining the integrity of the insurance system. What they DO deserve is to be reported to your state's Commissioner of Insurance!

I am constantly amazed at how many people try to use a company's track record of rate increases to make a decision as to whether to purchase the plan--literally on a weekly basis I am asked this question half a dozen times. Folks, it is irrelevant what a company did LAST year with its rates--irrelevant with respect to NEXT year, that is. It's that simple, period. End of story!

Well, there is one exception (as with most rules). If a company exceeded the industry average last year (or the year prior), then that could be a sign of eminent financial trouble. But as long as a company is within normal parameters of the industry average, then that is all you can reasonably ask for.

Again, I reiterate this point because I am utterly amazed that some people can be so gullible as to believe an agent who suggests that next year's rate increase "will be" or "should be" this much or that much because...."that's what we did last year." Ha! Listen folks--if the industry average last year was 15% and this company only went up 5%, then they've either been way-overcharging folks for years, OR more likely, they are on the verge of having huge financial trouble. It just doesn't stack up. Don't fall for it!! Instead, get that agent to put his "promise" IN WRITING. Then send a copy of it to the state Commissioner of Insurance, with a copy to the president of that company.

7. Exercise caution when doing business with an agent who is new to the business, including agents who work in a company's home office.

One of my favorite sayings is that it is waaaaay to easy to get an insurance license! In fact--did you know--it is probably easier to get an insurance license than it is to get a barber's license in your state! No kidding. And that is not a knock against the barbers or beauticians either. It is a knock on a regulated industry that is too loosely regulated, in my opinion.

To be sure, any agent with a valid license is a duly authorized agent. But do not be intimiated by the fact an agent has a license, or has been in business 25 years or more (as I have). ASK QUESTIONS! And if an agent is new to the business, ASK MORE QUESTIONS. Never take anything at face value when it has to do with coverage. Virtually everything an agent represents to you about a plan should be verifiable IN WRITING. Demand--yes DEMAND to see it IN WRITING. And if the written proof varies from the oral statement, red flags should go up!

Here's a classic example. You see--in writing--that a plan covers a surgeon's fee "up to $5,000." When you ask the agent if that is important, she says something like, "Don't worry about that--most surgeries are less than $5,000." If the little bells and sirens did not go off yet folks, I am at a loss as to what to say. In this example, the agent clearly does not have your best interest at heart. Show her the door--and be sure and get her insurance license information and report the incident to the Commissioner of Insurance! This type of sales approach is always improper ethically and likely illegal in most states.

There are many fine, professional insurance agents. Take the time to find one who will keep your best interest in mind--at all times.

Follow-up thought: Many people who use the internet to shop for health insurance are under the impression that they will get a "better deal" if they just go direct to the insurance company. First, this is patently incorrect. You will never get a better deal on premiums, etc. because the actual premium--the final premium--is always determined by an underwriter, following the completion of underwriting. But some home office agents may have a tendency to quote you a lower price, usually because they get paid "per application." They can do this by quoting you a preferred rate, when in fact you will not qualify for a preferred rate with the underwriter. So don't fall for that! (In my opinion, this is highly unethical.) But also realize that the agent you are dealing with at the home office of Company X will NOT be around to help you switch plans to another company in the future (because this will be a conflict of interest). Recommendation: Take the time to find a true professional agent who is independent and who represents numerous insurers! It's well worth the effort.

Bonus Tip: Be leary of plans that utilize small, local networks.

This is a growing problem. Ideally, you want to be part of a true national network of providers if at all possible. You never know when you may need advanced medical care that is not available locally, and in those situations, you always want to be treated at an advanced (or specialized) facility where your benefits will be recognized as "in-network."

In closing, I hope you found this Report to be helpful.

I've written several other Reports intended to help you make better buying decisions. See the links under the section entitled "White Paper Reports."


C. Dean Richard, JD, MSBA
"the HSA king"™
Independent Licensed Agent/Broker since 1980