Types of Private Health Insurance

Does the kind of insurance protection you get vary by where you're buying your insurance?

Absolutely. And I've talked to people who are quite surprised by this. When they change from, say, a large-employer health plan to a small-employer health plan, or from a job-based plan into an individual policy, they're surprised that it works differently -- the way the policies are structured, what they cover and the rules that govern them -- depending on if you buy on your own, if you're covered by a small employer or if you're covered by a large employer.

What's the best deal, to get insurance from a big employer or to have your own little policy?

Typically a large-employer plan offers the most comprehensive coverage -- relatively modest cost sharing, a deductible of $400 to $500 a year. They'll typically cover prescription drugs completely. They'll cover maternity care, hospital surgery, rehab after an accident. They tend to be pretty comprehensive.

But if you buy an insurance policy on your own, in the individual market, those tend to be much less comprehensive. It's typical to have an annual deductible of $1,000 or $2,000 a year per person. It's rare that individual policies will cover maternity care. Increasingly, they seem to be limiting coverage for pharmaceutical care, for prescription drugs, mental health, rehab.

Why don't people like their health insurance companies?

Insurance can involve a lot of red tape, a lot of jargon. And there's an overpowering tendency for insurance companies that are driven by a bottom line to try to make a profit, to avoid paying claims. It's kind of an irony. We buy health insurance in case we get sick, but health insurance is profitable when it covers people who don't make claims. Insurers lose money when people make claims. In fact, those are referred to as "losses." And you can get a lot of pushback if you make claims for insurance. You can have trouble buying health insurance if you need to make claims, if you have cancer or diabetes or high blood pressure.

I have a friend who's struggling with cancer, going through treatment, and in trying to think of things I could do for her, I take care of the bills. And when all of the EOBs [explanation of benefits] come in -- the little statement you get from your insurance company when they tell you about a claim that you've made and whether they'll pay it or how much -- they're hard to read.

The whole system is kind of funny. My daughter last year broke her elbow in a soccer game, and the claim kicked out. Then the insurer said we had to submit it to workers' comp. At the time she was 12, and I said, "Well, that can't be right." But they said, "Oh, well, just resubmit it." And it kicked out. It took me a year to get them to fix that claim. A year!

These kind of silly examples -- I think that's part of why people get frustrated.

Filing a Claim

Do they turn these claims down as policy in the hope that you'll give up and just pay the bill yourself?

I heard someone from the industry once say that that is the case. You'd have to ask someone from the industry about that. But it is certainly the case that many claims get turned down. And this is a knowable number. [However], regulators don't know how many claims get turned down. One tremendous problem with our private insurance system today [is that] it is the opposite of transparent. So much that could be known is proprietary or is not released.

Is this a matter of state law? Could the state make it more visible, get the numbers out on claims denied?

There are a few states that keep track. Most states have set up programs that will help people appeal a claim that's denied, particularly if the insurer is challenging the medical necessity of a claim. So you can take it to an independent place, and a medical expert will review it and help settle the dispute.

One of the immediate questions I had when I started doing this work was, well, how many claims get turned down, and how many come through the system? Because when you ask these state programs how many claims actually go through this external appeal, it's a couple hundred. It's not very many at all, in any given state. I thought, wow! What happened to all the other claims that were denied? And how many are there? Most states couldn't tell you.

But I did find a few states that track denials. And what seems to be the case is that when the insurer says, "No, I won't pay the claim," a lot of people say, "Rats," and then they pay the bill themselves.

They know the doctor; they don't want to keep him hanging.

Sure. I felt bad about making our orthopedist wait for a year while I argued with my insurer about my daughter's elbow. But a lot of people will just say, "Oh, well, no means no." They're polite, they were raised well, and so they pay the bill. And they probably shouldn't. They should appeal.

But in the states that kept some data, I tried to look at each level and how many initial appeals to the insurer were upheld. The vast majority were.

And then many of those that are upheld won't go forward to the next level of appeal. There are systems set up in private insurance to appeal denials, but often it's three or four levels that you need to go through. And a lot of people will figure out "no means no" before they get told the fourth time.

So it took you a year to get reimbursed for your daughter's broken elbow. Was that just incompetence on the part of the insurance company, or are they doing that on purpose?

I think it was probably the way their system was set up, but I have to question a system that's set up like that. I'll never know exactly what happened, but it seemed to be that once a claim had gone in electronically one way, there wasn't a way for the doctor to resubmit it electronically and get it to come out. That's what seemed to be happening in our case. After a while my husband said, "Why don't you just pay the darn claim?," because he could tell I was getting mad about it, and I was just getting stubborn at that point.

So I'm feeling that your husband's reaction is what the insurance company would like to generate, that people ...

Well, and that works for them.

The system is complicated. My friend who has cancer -- I have a notebook this thick. She's getting weekly chemotherapy infusions. There are lab tests, shots that she needs. She has scans every couple of months. She has visits to the oncologist. She's had surgeries. It's incredible, the stack of claims that comes in when you get sick. And it's that small proportion of us who get very sick who account for 80 percent of health care spending.

So for insurance to work for people, it needs to be idiot-proof.

And then some people, when they get the disease, run up against something called the lifetime payout. The insurance company won't pay?

Yes. Many policies have a lifetime limit. It is unusual for people to hit it, but there are some very expensive conditions. I met a young man once who has hemophilia. He requires a very expensive clotting factor to prevent these bleeding episodes that costs a couple hundred thousand dollars a year. So with a million-dollar lifetime limit, he has to get new health insurance about every four years.

The Challenges In Buying Your Own Insurance

[Tell us about] the individual health insurance market, where a person buys their own individual health insurance.

In any given year, there are probably about 15 million -- roughly 5 percent of the non-elderly population -- who buy coverage there. If they're self-employed, if they've retired at age 55 and aren't going to be working for another 10 years until they qualify for Medicare, [for these people] the individual health insurance market can be a place where people come and stay for a very long time.

But most of the participants in the individual health insurance market are there for a brief period of time; on average it's about 18 months to two years. It tends to be a place where people go while they're between jobs that offer health benefits. Or they're young adults. When they first graduate from college and can no longer be covered under their parents' policy, they may need to buy individual health insurance until they get that first job that offers health benefits. People who get divorced, widowed or separated from their job-based coverage also may need to come to the individual market to buy coverage. So it's sort of the buffer. ...

On average, about 2 million Americans lose or change their health insurance every month. And navigating those transitions is tricky. Often those transitions will take you through the individual health insurance market, and people can run into trouble there. ...

How hard is it for the individual to buy private insurance?

There was some survey work done by the Commonwealth Fund in New York. And the study showed about one in four adults will seek coverage in the individual market at some point over a three-year period. But about 75 percent have trouble getting coverage either because they're turned down or the premiums are more expensive than they feel they can pay, or because they look at the policy and say: "Well, that's not adequate coverage. The deductible's too high; it doesn't cover the benefits I need; it excludes my pre-existing condition."

[What are the differences between employer-provided health insurance and buying insurance in the individual market?]

The greatest protections reside in coverage that you get at work through your employer.

Note: Employers don't have to provide health benefits -- and many don't. And often it's the case that they don't have to provide it to all of their employees.

When an employer decides to offer health benefits, they can't say, "You can't be in my health plan because you can't pass a physical." Nor can they charge you more -- for example, "I'll pay 80 percent for most employees, but only 50 percent for you because your wife has cancer" -- or offer you different benefits. So that's a very important protection, and it's good, because that's where most of us get our coverage most of the time.

But when you come out into the individual market, it matters where you live. In most states, individual health insurance is medically underwritten. That means the insurer will ask you to fill out a lengthy form, answering a lot of questions about how healthy you are now and how healthy you've been in the past, and when's the last time you went to the doctor, and when's the last time you took a prescription. And you have to sign a little form that says the insurer has access to any and all medical records ever developed, ever kept about you.

And they will study up on those and decide. If you are a good enough risk, they'll sell you health insurance. If they think you're going to cost money, generate more losses, they might turn you down. Or they might offer you coverage but at a surcharge premium. You have to pay 50 percent more or 100 percent more. Or they might offer you a policy that just excludes that condition, or the part of your body that condition affects. So if you have had asthma, for example, you might be offered a policy that excludes any claims related to your asthma. Or you might be offered a policy that excludes your respiratory system.

So it varies by insurer. They all have different underwriting styles, and it varies by state. States can pass laws that regulate underwriting. There are a handful of states that prohibit medical underwriting in the individual market.

So there's some states that say they've got to sell to everybody?

Yes, there are: New York, New Jersey, Maine, Massachusetts and Vermont.

And that's called guaranteed issue?

That's called guaranteed issue.

How does it work? Is it successful?

You apply, you get the policy. That's how it works. There are only five states that do that for everybody.

Why wouldn't the other 45 states want to have their people [insured]?

There's a lot of resistance to this on the part of the insurance industry. They argue, legitimately, that in a voluntary market, where people don't have to buy insurance, that people might wait until they get sick to buy coverage, and then they won't have enough premium dollars coming in from the healthy people so that they won't be able to remain solvent. So they worry that there will be adverse selection.

But the flip side is also true. It is profitable for insurers to sell coverage to people who aren't expected to make claims and who don't make claims; and they lose money on people who do make claims. So if you're pregnant and you try to buy health insurance on the individual market in most states, they won't even give you the application. They'll just say pregnancy is an uninsurable condition.

How about the rest of your family?

They might cover the rest of her family and exclude her from the policy. ...

[Talk about the process of purchasing individual coverage.]

... They'll ask a lot of questions, a lot of very broad questions: When's the last time you went to the doctor? When's the last time you had a lab test? Do you take any prescriptions? And they'll ask some specific conditions -- Are you pregnant? Or do you have diabetes? Do you have heart disease? -- that will sort of end your conversation if you answer [yes] to any of those, right there.

You seem like a healthy person, but you might be surprised. People are turned down because they have hay fever, because they have acne. People are turned down if they're 20 pounds overweight. Bedwetting, ear infections in kids -- things that are really common little ailments can get you into trouble when you are trying to buy an underwritten policy.

So if your kid is wetting the bed, would they insure the parents and just leave the kid out?

It depends. The bedwetting will probably be fine, but there might be an investigation: Have you been to the doctor about it, and was there a diagnosis? If the doctor says it's not a problem, then you'll probably get the coverage.

But if he says, "Well, there might be something; I'm not sure" -- this is one of my favorite medical underwriting stories. I had a student once. He had left his job to come back to graduate school, and knowing that his job-based coverage was going to end, he went to the doctor to try to get all his shots up to date and everything. And he complained while he was in. He said: "You know, I've got this kind of pain on my left side. I don't really know what it is." And the doctor said, "Really?," and made a note of it, and ran a few tests, and said, "Well, I can't really figure out what it is."

When my student went to buy an individual policy, he was offered a policy that excluded his left side. So depending on which side of him you sat, he was insured or uninsured.

So these amendments to the policy that carve out coverage for whatever it is that is targeted can really be quite sweeping.

In a study a couple of years ago, we tested some hypothetical applicants, sent them to real insurance companies, asked the chief underwriters to consider the applications. One of our applicants was this young, perfectly fit young woman who had seasonal allergies. And so she took Claritin, or whatever was offered then, in the spring and the fall so she wouldn't sneeze on her customers; she was a waitress.

And she was turned down a couple of times for policies. She was offered policies at a surcharge premium -- you have to pay 25 percent more than you would have. She was offered policies that excluded her allergies, and three times she was offered a policy that excluded her entire respiratory system. We had another guy whose circulatory system was excluded. So it can be a very difficult market to operate in.

If somebody comes in applying for health insurance coverage in the individual market and is pregnant, what are the downsides for the insurer?

It's expensive to have a baby -- probably going to cost $10,000 to deliver, maybe more if it's a C-section. Chances are the insurer isn't going to collect that much in premiums for a year. Insurers really do, I think, try to sell coverage inexpensively in the individual market, but they can only do that if they're not going to pick up a lot of claims.

Many states require that when a baby is born, the baby is automatically covered under the mother's policy. I would need to go back and see if it's the parents' policy or the mother's policy. But that would be a reason why expectant fathers might be turned down as well.

But every state has a law that says when a child is born, it's automatically covered under the mother's policy for the first 30 days. That's a law that I think the hospitals and the March of Dimes worked on together. If something scary happens, you don't want there to be any question that the baby can stay and be cared for, at least at the outset. But if there is a complication, or something's wrong with the baby, that can be $100,000 in claims in the neonatal intensive care unit.

What happens if the mom doesn't have insurance, has the baby, and there's a complication? They don't stick that baby out on the sidewalk, right?

I haven't heard of a baby being kicked out of the NICU. So the hospital would probably lose a lot of money on that one. But they might well go after the family for the unpaid medical bills.

Unpaid medical bills are the leading reason why families become bankrupt in the United States. And hospitals have become quite aggressive bill collectors.

What If Insurers Won't Sell Me Coverage?

Is there anywhere I can turn if it's determined I'm uninsurable by the private insurance industry?

Some states have created programs called high-risk pools that are there as an alternate source of coverage for people who are determined to be uninsurable by the private industry. However, these are expensive programs. If they're created primarily to cover people who are turned down because they're pregnant or have cancer or diabetes, then these are going to be very expensive programs to operate. And states that aren't flush in money have looked for ways to try to limit the losses of these programs.

One great way to limit losses is to limit how many people can come in. So these tend to be very small programs. In the whole country, there are 35 states that have high-risk pools, but fewer than 200,000 people are enrolled in them.

And most people who need to get into a high-risk pool probably couldn't. The premiums are very expensive, usually multiples of what is offered in the private marketplace. And one of the greatest ways to discourage people: The very condition, the very pre-existing condition that made you eligible for the pool in the first place, will be excluded from coverage for six to 12 months. So that usually ends people's interest.

In some work that I did with the American Cancer Society for a couple of years, people who called their call center trying to navigate a lapse in insurance coverage when they happened to find out they have cancer and were trying to get coverage, thousands of them were referred to state high-risk pools, and more than 90 percent of the time, they couldn't get in.

So these high-risk pools in many states really are not a solution.

Not the way they're set up now. They would need to be well funded, and they would need to take people willingly and not exclude coverage for their pre-existing condition.

If I lose my coverage or lose my job, isn't there some way I can buy it myself or something?

There may be. There's been over time a patchwork of laws that have been created to help people navigate transitions. But there's no surefire protection out there. There's no system yet that says no matter what happens to you, you'll always be covered.

So if you lose your job, and you worked for a company that had at least 20 employees, then you will probably be eligible to extend your coverage under a law called COBRA. The employer will no longer have to pay the premium, and typically today the employer is paying 80 to 85 percent of the premium for you. So you need to pay the whole thing.

If you've just lost your job, or you just got divorced from your spouse's income, chances are, you've had a dip in income. And so being presented with the full cost of your job-based health plan is probably going to be unaffordable. It's violating one of my "A" tests.

Research shows that about 80 percent of people who are eligible for COBRA don't take it. And the primary reason: People can't afford it. But if you've got the bucks, you may be able to extend your coverage temporarily through COBRA for 18 months if you lost your job, or for up to three years if you lost coverage because of a change in your family status, in your dependent status.

When we were traveling the world for the other film we did, Sick Around the World, one of Germany's top health policy experts said to me: "I don't understand why in America you would take away the health insurance when a person loses his job. Isn't that when she needs it?" [Read more from the German expert's interview.]

That's a really great question. But we do. Our health insurance status is highly derivative in the United States. It derives from where you work, who you're married to, who your parents are, your income, your age, where you live. It's almost always a function of something else that often you can't change or that will change without your being able to control it.

Are there people who stay in a job they don't like, but don't make a move because they're afraid of health insurance?

Absolutely. There are people who stay in jobs; we still have job lock. There are people who stay in marriages because they just can't afford to divorce their health insurance.

I think people do make kind of heroic changes in their lives -- take a job or keep a job that they don't want, move to someplace that has maybe different programs or different rules governing their market, decisions about getting married, decisions about retiring -- driven by health insurance. That's got to be a drag on our whole society at some point. ...

Can I just go in the emergency room and get treated?

Federal law requires emergency rooms to care for people when they are in crisis.

Near death?

You have to be having a medical emergency or you have to be in active labor. So if you're bleeding, if you're having a heart attack, if you're in severe pain, emergency rooms are required to see you without first asking about how you'll pay. And they are required to stabilize you, or deliver the baby if you're in labor.

But after that, they don't have to take care of you anymore. They can put you in a cab and send you someplace else. And they can always bill you. So emergency rooms have to care for you, but they can also come after you for the money.

Take your house away.

They can. They can.

So that doesn't work either.

When you're in crisis, it's good to know that the emergency room is there for you. But people are nervous that a bill will then come that they can't pay, and that can discourage people from going.

But a lot of people do go, because everybody else in our health care system is asking you -- at the counter at CVS or the doctor's office or the front door of the hospital, they can ask you, "How are you going to pay?," and send you packing if you can't.

So the emergency room can't do that, and a lot of uninsured do congregate in the emergency rooms. And anyone who's ever been to the emergency room at night knows -- (laughs) -- that that can be a pretty crowded place. So it's kind of another stress point in our health care system. People get funneled into this place because there isn't anywhere else to go.

What About the Young and Healthy Who Don't Want to Buy Insurance?

How do you feel about the 24-year-old couple that are both healthy as all get-out, and they don't have that much money anyway, and they don't want to buy health insurance?

I think they are the poster child for why we don't have reform. There's a lot of lore out there about how many millions of them there must be.

Is the lore right?

I have no doubt there are people out there who are stubbornly uninsured. It's a big country, and there are a lot of folks around here, and I'm sure we've got some of those. But overwhelmingly, the evidence is clear: People who don't have insurance would like to have it. But they can't, because our system is not available, affordable, adequate, always. And at least one of those tests has been failed.

And people are shut out of the system. They're ineligible for anything. They don't have a lot of money. They can't afford coverage. Some people have come into the system and bought coverage that's junk. As many as 25 million Americans may be underinsured. They may be out there with policies that really won't take care of them if they get very sick, that will still leave them bankrupt and without access to health care.

So the insurance company always talks about these self-described supermen, the people who think they don't need insurance. And you're saying that's a straw man; there aren't many people like that.

Yeah, absolutely. That is the case. Most people who are uninsured would desperately like to have coverage.