How
Rate Increases are Calculated
One
common myth is that insurance companies will raise your
rates when you have a claim. When I first started
out in the health insurance business in 1987, I was trained
that one of the main selling points of the particular policy
we offered was that it was “non-cancelable,” and
that the insurance company could not single the insured
out for a rate increase.
Well
I was young and naïve, but I came to learn that this
was very misleading. In fact, all health insurance
plans work this way – no matter how many or how big
your claims are, you cannot be cancelled because of those
claims and the only way you can be rated up is if everyone
in your “block” is rated up by the same amount.
For
example, a block could be everyone in zip code 12345 who
has purchased the “Super HSA Plan” with a $3,000
deductible from company XYZ. Eventually there will
be some people in this block who file very large claims
on their Super HSA Plan, but as long as there are new healthy
applicants joining the block every month, (who will be paying
premiums and not filing many claims), the premiums should
stay fairly stable.
Closing
the Block of Business
The
catch is most insurance companies eventually come out
with new plans, and quit selling older plans. So if
the insurance company comes out with the “Fantastic
HSA Plan,” they may quit offering the “Super HSA
Plan” for sale. This is called “closing
the block of business.” The next time there is
a rate increase on the Super plan, people who are still
in good health may find a better value elsewhere.
Someone who has had a heart attack must keep what he’s
got, because a new insurance company will not accept him
due to the serious pre-existing condition.
So as
healthy people begin to leave the block of individuals covered
by the Super HSA plan, the block shrinks. Since people
with health problems are less likely to leave, the average
health status of people insured in this block go down, and
the size of the average claim goes up. This results
in more rate increases, which results in more healthy people
leaving the block. Eventually this can turn into a
“death spiral,” in which rates are increasing
quite substantially for anyone left in the block.
To give
you an example, last week we had a call from a 42 year-old
single woman from Atlanta, Georgia. Because she had
had some pre-existing health conditions that prevented her
from changing plans, she had been with the same plan for
the past 12 years. Her premiums, which had started
out at less than $80 per month, had grown to – get
this – $1,783.46 per month. If she qualifies
(which I believe she will, since the previous health problem
is no longer a concern), the same insurance company
that she uses now will cover her under a new plan for just
$116.82. (Though, she may be better off switching
to a different company).
How
to Protect Yourself
Unfortunately,
there are no guarantees that the plan you have will not
eventually experience large rate increases. But there
are some steps you can take to reduce the chances that you’ll
end up in a situation like I described above.
- Go
with a reputable insurance company with a long track record.
There are a lot of insurance companies out there, some
who’ve been around for decades and others who have
been in the business for only 3 or 4 years. In my
experience, the more established companies in general
tend to have more stable rates than newer, smaller companies.
- Ask
your agent if the company tends to charge the same rates
for renewals as it does for new business, or if rates
are higher on people who have had the coverage for a couple
years.
- Compare
rates every year or two.
No one likes shopping their health insurance coverage,
but doing so on a regular basis will save you money.
(By the way, HSA for America
clients benefit from our Annual Comprehensive Policy
Review, in which we offer to reanalyze your situation
so that you know your options and evaluate the benefits
of changing plans.)
- Stay
healthy, so you can change plans if you need to.
Though this isn’t always possible, the majority of
the health problems and medical expenses American’s
suffer from are self-inflicted. Exercise, eat right,
and take care of yourself, and the odds are high that
you’ll be able to qualify for coverage any time you
need to change plans because rates (or your needs) have
changed.
- Eliminate
risk factors, and ask the insurance company to adjust
the rates accordingly. For instance, if you
quit smoking or lose weight, most companies will adjust
the premiums once the new behavior has been in effect
for at least a year.
- Raise
your deductible as you accumulate funds in your HSA.
There’s probably no sense carrying a $2,000 deductible
if you have $15,000 accumulated in your HSA. As
your HSA grows, you should always be raising your deductible.
Premiums drop dramatically as you go to a higher deductible,
and HSA contribution limits go up unless your deductible
is already higher than the maximum contribution.
When
I was studying for my master’s degree in nutrition
and exercise science a couple years ago, I learned that
64.5% of all Americans over age 20 are considered to be
overweight. Tremendous numbers smoke, don’t exercise
at all, and eat a diet of sugar and junk food. (By
the way, this was even true of many of the faculty in the
nutrition department!) And many tend to believe that good
health is based on a lucky roll of the dice...
Most
people who own HSA plans are different. Because health
savings accounts reward you with lower premiums, tax breaks,
and a medical retirement account, they provide a tremendous
incentive to take personal responsibility for your health.
If you deposit money into your HSA and don’t withdraw
it right away, it will grow tax-free and could accumulate
into a substantial amount of money. Also remember
that HSA funds can be used to pay for lab work, alternative
therapies like acupuncture or homeopathy, or virtually any
other medical procedure that is meant to treat or prevent
a specific disease.
So be
smart about your health and your health insurance.
Stay healthy, so you don’t need to withdraw money from
your HSA, and so you can switch insurance plans whenever
it becomes beneficial to do so.
It can
sometimes take up to six weeks or longer for an insurance
company to approve your application for coverage.
So if you do not yet have an HSA plan, now is the
time to apply. You’ll want to get your coverage
in force by January 1 so you can get the full tax benefits
for 2007.
