January 2008
Self-employed and frustrated
"I can't find anyone who wants to cover me." He had a liver transplant 10 years ago.
Photograph by Tim FullerBruce Stephens,
Tucson
Tucson
When Bruce Stephens, 55, decided to leave his corporate job to open a senior in-home-care franchise business in Tucson in
2007, it never occurred to him to worry about health insurance. He had had a liver transplant at age 44 because of a congenital
metabolic condition but says, "I was fortunate enough to get a very good match and have never had any problems. I just passed
my annual physical with flying colors, and my liver is in such good shape that the transplant clinic only needs to see me
every five years. I didn't think it would be a big deal."
Like many people leaving corporate jobs with generous health insurance, Stephens continues to receive coverage because of the federal COBRA law, which allows him to stay on his former employer's plan for 18 months, paying the entire premium himself. Stephens recently went shopping for an individual health insurance planto cover him when COBRA runs out. "I went to agents and individual companies, who found insurance for my wife and son, who's 21, but I can't find anybody who wants to cover me," he says. A few companies offered insurance only if they could exclude his blood tests and anti-rejection drugs related to his transplant. He's still looking.
Consumers discover that though individual policies are sold by companies with familiar names like Anthem and Aetna, the individual market is unlike the group market they are used to.
Group insurance is usually the best deal around for both insurers and insured. Employers typically pay a hefty share of the
premium, usually around 70 to 85 percent, in exchange for a tax break. Job-based plans tend to be fairly comprehensive, and
the subsidized premiums, though they've risen sharply in the past seven years, remain low enough that most employees sign
up. That means group plans collect enough premiums from the majority of people who are relatively healthy to pay the medical
expenses of the few who are not.
"The fact that they're employed is the glue that holds people in the group market," says David Shea, a health-insurance actuary in Virginia and spokesman for the American Academy of Actuaries. People who buy individual health insurance pay the entire premium themselves.
"People can voluntarily stay out of the market completely," says Linda Blumberg, Ph.D., principal research associate at the Urban Institute, a Washington, D.C., think tank. "We want to spread the risk as broadly as possible, and the private market is just too small."
Shea offered a simplified example of why that is so:
"Person A is 25 years old, exercises regularly, isn't overweight, and doesn't smoke. Her health-care costs average $50 a month. Person B is 50 years old, smokes a pack a day, doesn't exercise, and is 60 pounds overweight. His health care costs $250 a month. If an insurance company charges a premium that covers the average cost of these two people, it's going to be $150 a month. So which person is going to enroll? Person B, because Person A's costs are much lower than the premium charged. And that's where the market starts to fall apart." Insurers call that phenomenon "adverse selection," and they use strategies to minimize risk. It may make sense from the insurer's point of view, but it creates difficulties for people in less than perfect health trying to get or hold on to individual health insurance plans.
Like many people leaving corporate jobs with generous health insurance, Stephens continues to receive coverage because of the federal COBRA law, which allows him to stay on his former employer's plan for 18 months, paying the entire premium himself. Stephens recently went shopping for an individual health insurance planto cover him when COBRA runs out. "I went to agents and individual companies, who found insurance for my wife and son, who's 21, but I can't find anybody who wants to cover me," he says. A few companies offered insurance only if they could exclude his blood tests and anti-rejection drugs related to his transplant. He's still looking.
Consumers discover that though individual policies are sold by companies with familiar names like Anthem and Aetna, the individual market is unlike the group market they are used to.
"The fact that they're employed is the glue that holds people in the group market," says David Shea, a health-insurance actuary in Virginia and spokesman for the American Academy of Actuaries. People who buy individual health insurance pay the entire premium themselves.
"People can voluntarily stay out of the market completely," says Linda Blumberg, Ph.D., principal research associate at the Urban Institute, a Washington, D.C., think tank. "We want to spread the risk as broadly as possible, and the private market is just too small."
Shea offered a simplified example of why that is so:
"Person A is 25 years old, exercises regularly, isn't overweight, and doesn't smoke. Her health-care costs average $50 a month. Person B is 50 years old, smokes a pack a day, doesn't exercise, and is 60 pounds overweight. His health care costs $250 a month. If an insurance company charges a premium that covers the average cost of these two people, it's going to be $150 a month. So which person is going to enroll? Person B, because Person A's costs are much lower than the premium charged. And that's where the market starts to fall apart." Insurers call that phenomenon "adverse selection," and they use strategies to minimize risk. It may make sense from the insurer's point of view, but it creates difficulties for people in less than perfect health trying to get or hold on to individual health insurance plans.
