When Douglas Leal hurt his back in an auto accident last spring, the freelance technical writer learned a rather disturbing truth about the health insurance he had purchased.
“My car was better insured than I was,” said the 30-year-old resident of downtown Chicago. His State Farm insurance policy, which costs him $652 yearly, didn’t cover the $230 bill he rang up at an orthopedic surgeon’s office.
With medical costs sky high, obtaining insurance on one’s own is an expensive proposition.
Many people, like Leal, are forced to buy insurance with high deductibles and minimal coverage.
Others go without insurance. Of the 12.1 million self-employed Americans working in 1991, according to the Washington, D.C.-based Employee Benefit Research Institute, 2.6 million were uninsured.
Although the situation is grim, under President Clinton’s proposed health-care reforms, all Americans would have health-care coverage.
Additionally, self-employed and independent contractors would come out winners. Under the plan, they can deduct from their taxes 100 percent of their health-care costs. As with any small business, they can pay the employer share and also an individual share. If a firm earns less than $24,000 a year, it is eligible for subsidies.
But Clinton’s proposal to create America’s first mandatory universal health-care system will face many challenges and proposed changes as it grinds through a long legislative process. If you are a self-employed consultant, an actor, a restaurant worker with no insurance from your employer or in any other job that lacks health benefits, you have choices now.
While many major insurers don’t sell policies to individuals, a number of smaller companies, as well as Blue Cross and Blue Shield of Illinois, issue such policies.
For the consumer, the key is knowing how to find health insurance that has premiums you can afford and reliable coverage.
To get a good deal, there is one rule: Shop around.
“I’m a firm believer in making a lot of calls,” said Jim Hallberg, president of Insure One, a Bedford Park-based insurance broker.
The first calls to make should be to groups that you belong to. If the group, whether a union, fraternal club or professional association, offers an insurance plan, you may be able to join it and avoid the high cost of individual coverage. If you are self-employed, for $72 a year you can join the National Association for the Self-Employed, which offers an insurance plan for its 326,000 members. The Washington, D.C.-based group can be reached at 800-232-NASE.
Group coverage, however, is not always cheaper. If you join a plan covering a group of people with poor health or in a risky occupation, your premiums may jump, Hallberg said.
If you decide to take an individual policy, you can learn about different plans by calling independent brokers, who sell insurance for several companies. Or you can talk to an agent who represents only one insurer.
Remember, however, insurance agents are salespeople. They will not make money unless they sell you insurance from a company they represent.
Before talking to agents, you must understand what you need and how to talk about it in insurance jargon.
Under insurance policies, consumers must share the payment of their medical expenses with their insurer in two ways once premiums have been paid. Consumers pay deductibles and co-insurance.
A deductible is the amount that a person pays up front before the coverage kicks in. Once the deductible is met, the company and the indivdual share in medical costs. A typical split is 80/20, with the company paying 80 percent of costs and the individual paying 20 percent in co-insurance. After the individual’s co-insurance payments reach a certain amount in a year, called the co-insurance maximum, the company pays for 100 percent of expenses. However, not all policies have co-insurance maximums.
When discussing deductibles and co-insurance, agents often use a phrase that can be confusing: “out-of-pocket expenses.”
According to Larry Dunphy of Lakeview Insurance, a firm near Wrigley Field, individual policies, unlike group policies, often do not include the cost of the deductible in the calculation of your maximum out-of-pocket expenses for a year.
For example, if an agent says a “group” policy has $1,000 maximum out-of-pocket expenses, that often means no matter how expensive your medical bills are for one year, you do not have to pay more than $500 in co-payments plus $500 for the deductible.
But if an agent says an “individual” policy has $1,000 maximum out-of-pocket expenses, that may really mean your maximum co-payments are $1,000. Your actual maximum expense could be $1,500, counting the $500 cost of the deductible.
Figuring out how much money you spend on doctors in a typical year is helpful in gauging how high a deductible to choose. Raising or lowering the deductible is often the best way to adjust the cost of premiums.
Take the example of a 40-year-old woman who chooses a $500 deductible that results in a monthly premium of $134.
If she hiked her deductible to $1,000, she would pay a premium of $103, saving $372 in premiums in one year, according to David Houghtaling, co-owner of Houghtaling Insurance in Aurora.
Raising the deductible is the right choice. If she is a non-smoker and in normal health, she typically wouldn’t spend $500 in a year anyway, so the lower deductible wouldn’t allow her to draw any more benefits, Houghtaling said.
Other things you should think about when examining policies:
– Non-cancellation clauses. They forbid the company from canceling your coverage.
– Per occurrence deductibles. They give you a cheaper premium but they also make you pay a deductible for each illness. A calendar-year deductible, on the other hand, lets coverage start when your cumulative spending for the year goes over your deductible.
– The difference between HMO, PPO and traditional plans. While traditional plans cover you no matter which doctor or hospital you go to, a preferred provider organization (PPO) limits you to a list of approved health-care providers. HMOs (health maintenance organizations) are even more restrictive.
If you were previously covered by your employer, prepare to be shocked at the high cost of premiums for individuals. Companies typically pay 75 to 90 percent of the cost of their employees’ insurance, Hallberg said.
Individual policies also often lack certain coverages, such as for dental and routine maternity expenses, said Dunphy. And, he added, don’t expect free physicals.
Once you understand and find the coverage you want, it is important to check out the reliability of the insurer.
Ratings of companies’ financial soundness can be obtained by calling the Illinois Department of Insurance. The department also keeps track of written complaints filed against companies, said Nan Nases, a department spokesperson.
Nases urges customers to check to see if an insurance company is licensed in Illinois. If it has no license, your policy is not protected by the state guaranty fund. The insurance department’s Chicago phone number is 312-814-2420.
No matter how much research you do, choosing your own insurance policy is difficult.
“Good health insurance isn’t cheap and cheap health insurance isn’t good,” said Don Petolick, vice president of financial services for Insure One. “You have to make a choice.”
