Thursday, January 12, 2012

A Quick Guide To Individual Health Insurance

There are many different types of health insurance available on the market. If you are searching for individual coverage, I have a bit of bad news. While it is readily available, it usually is not cheap. To help you figure out how to get the best deal, I've put together this guide for your edification.

You might be wondering off the bat why individual health insurance tends to be a bit pricier than group insurance. The answer has to do with risk. With a group insurance policy, the risk that the insurance company will have to pay out a large claim is spread over the people in the group. If there are 20 people in the group and one needs surgery, the cost is mostly offset by the large premiums paid by the group as a whole. If there is just one person, this is not the case and insurance companies are leery about losing their shirts on individual policies.

Once you apply for individual health policy, you are going to be subject to more onerous requirements than those who apply as a group. Your application will ask you to list all medical conditions you have. The insurance company may then ask to see certain medical records to ascertain if you are telling the truth and the extent of any problems. Again, they are trying to evaluate the risk of insuring you.

If any pre-existing conditions are found, the company may not insure you or may put an exemption for those conditions. For example, let's assume I apply for health insurance on myself. I am found to have a heart condition that could lead to a heart attack. The insurance company may reject my application because there is too much risk I will have major problems during the year. Alternatively, they may offer me a policy with very high premiums or a rider that excludes coverage for any medical costs related to my heart condition. The exact approach often depends on the state you are in due to legal requirements, but neither of these two options are very good.

When Catastrophe is Good

Okay, that subheading might be a little misleading. Catastrophe is never good, but there is a particular type of health insurance that carries the title that can be very good for individuals seeking coverage. It is called a catastrophic health plan and it is perfect for individuals who are comfortable with the risk of a higher deductible or if they have an HSA.

So, what are those pros and cons? Well, let's start with the positives. The first positive is this type of policy comes with much cheaper premiums than any other health insurance policy you will find. The second positive is that it will cover you for any health bills related to major health issues. The third positive is it is very easy to qualify for these policies. Having said all this, there is a potential big negative that you need to understand up front.

A catastrophic policy is also known as a high deductible health plan (hdhp). What this means in practical terms is the policy is only going to pay for medical bills after a high deductible has been satisfied. A typical deductible for a policy of this type might be $3,000 or more. This means that you have to pay all your medical bills during the year until they total $3,000. Only after that is done then the insurance company will take over payments. Most people only incur $3,000 in medical bills in a year if they have some major health problem, which is where the name "catastrophic" comes from.

I'm not going to mislead you, it's not easy to find the right individual coverage, make sure you shop around. If the prices are simply too high, check into the possibility of a catastrophic insurance policy. When you combine a high deductible plan with a health savings account it's really quite slick. I have one and am very happy with it.

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