We have angered many individuals when we explain to them that the insurance company wants only relatively healthy applicants. There is still the belief that health insurance should be available to everyone. While nobody would disagree with this idealized concept, the reality of the situation is that a  health insurance plan will reject a large number of applicants based on prior health history and put permanent exclusion riders on any preexisting condition. Yes, they can do that. No matter what your friend, neighbor or other trusted advisor told you, they can and will pick and choose who they wish to insure.

Without making excuses for this behavior, consider the following scenario. You drive your car into a wall and remember that you don't have any insurance. Then you call a new insurance company and tell them you need insurance immediately because your car is a wreck. Foolish isn't it? So, why would a health insurance company want your premium check each month when they know they will have to give the money back to you in claims? Most people confuse private insurance companies with the government. The insurance company does not have to insure you at all.

Automatic Declines

There are a certain category of illnesses and conditions that will give you an automatic decline. Diabetes, cancer, heart conditions, colitis, hepatitis C and many others. A good agent knows what they are and will not submit your application if they see them checked off. The problem is, many agents receive an advance commission on submitted business. So, they send off your application, collect their commission and then replace it with other business after you are rejected. Unfortunately, while waiting for this rejection letter, which could take months, you may have missed out on an opportunity for a guaranteed issue plan.

Some health insurance applications ask their questions within a time frame. For example, did you have any of the following in the past seven years? If you had cancer 15 years ago, was successfully treated and never had a problem since, you could honestly answer the question "No". You would have gotten by an automatic decline question. Other forms will go back indefinitely and here you are forced to reveal your entire medical history. At this stage, it is up to the individual underwriter to determine your insurability.

Catch 22 (one of many): If you had for instance had cancer 12 years ago, was completely cured and had no treatment, you could have answered no to the question on the medical history portion of the form. However, if the underwriter sees a reference to this in your records when looking for something else, they can deny you coverage.

This puts you in a difficult situation. Do you tell your new family physician about these prior illnesses so they can include it in your records? Or, do you omit this information to get coverage?

What are the underwriters looking for when evaluating a health insurance plan?

An insurance company is asking themselves the following questions:

1. What is the likelihood that this individual will require treatment of any type for their illness in the future? The answer needs to be that is no more likely than anyone else. So, if you have controlled high blood pressure but smoke and are a little too heavy, they might not like the odds.

3. Will their prior condition(s) make them more likely to develop other related problems in the future. Sometimes this situation is handled with riders to exclude the possibility of the insurance company getting stuck for a bill. Even if your blood pressure is controlled with medication, if you smoke a pack a day and haven't seen your toes in ten years, forget about health insurance.

I thought they can't exclude something permanently if I had prior coverage?

This is a common myth. Some states have very different rules. Nevertheless, if the insurance companies were not allowed to exclude certain conditions from your health insurance plan, they would just deny you insurance completely. Certain conditions will yield a "rate-up" where they only increase the premium slightly but do not exclude the condition. However, if you have had back problems for example, you can bet that there will be a permanent exclusion rider for all subsequent back problems. Theoretically, the rider can come off in the future. However, I have never seen this happen.

Exclusions and Limitations - What is actually covered?

There are very well known health insurance companies that will tell you that they will cover you anywhere in the United States. What they don't tell you is that they will pay your expenses based on the lowest priced provider of that service. They also somehow forget to tell you that if you are outside your home area the coverage becomes reduced and the cap on maximum out of pocket is thrown out the window. With clauses like these you can see why you need to read your policy very carefully.

To avoid this problem we recommend that your plan utilize a national PPO network. With a strong national network you can usually find a hospital if not a doctor who is a participating member. Furthermore, all procedures have been pre-negotiated. There can be no arguments about usual and customary fees. The hospital has signed a contract with the PPO network agreeing to their schedule.

Exclusions can be found in your outline of coverage and to a lesser extent in the company's marketing literature. The exclusions are to a generally what you would expect. However, there are many procedures that are excluded the first six months of a plan that might surprise you. Be sure to look at this list.

Limitations also need a once over. While the chances for an organ transplant are very, very remote, you will find many plans putting a cap on these procedures that is far lower than the rest of the plan. If you have $100,000 coverage for certain organ transplant procedures, they will not even put you on the donor list. Watch out for this one.

One last word on exclusions. You do not have to have actually been to a physician to have something excluded. If you crack your ribs while horsing around with a friend and then quickly get health insurance so you can go to a doctor, you will get a nasty surprise. The insurance company will tell you that a reasonable and prudent person would have seen a physician for the problem and waiting to get health insurance was not effective. Your claim will not be covered. So, don't sit around doubled over in pain waiting for your health insurance to kick in.

Deductibles, Coinsurance and Copays

Before I state my case on what you need versus what you want. Let me clear up some terms first. You have just bought a plan with a $2500 deductible with coinsurance of 80/20 to $5000. It also has a $35 copay for doctor visits. Now what does this all mean?

A $2500 deductible means that you will be responsible for the first $2500 of medical expenses each year. After that the coinsurance takes effect.

80/20 to $5000 means that after you paid the deductible, the next $5000 of medical expenses will be shared between you and the insurance company. They will pay 80% or $4000 and you will pay 20% or $1000. After that, the insurance company will cover all medical expenses 100%.

The $35 copay is not subject to a deductible. It does mean that if you are sick (not for checkups) the participating doctor's fee is $35. This does not include tests or other office procedures. They go against the $2500 deductible.

In almost all instances, higher deductibles will save you money. Sounds crazy doesn't it? A plan where you pay more of your medical expenses will possibly save you thousands of dollars a year. When you look at the rate tables you will see that lowering your deductible from $2500 to $1500 might increase your premium by more than $1000 per year. If you bring it all the way down to $500, you will see that a $2000 reduction in deductible will probably cost you $3000 a year more in premium. Do you now get the message. The insurance company will make mince meat out of you if you get a low deductible. This is not like income tax. There are no refunds at the end of the year. Statistically you will save money with higher deductibles.

Same for prescription drugs. Get a plan with a high deductible for the Rx benefits. If you want low copays for brand name drugs they will soak you. Considering that they won't cover what you are currently using, this too becomes a "fool's errand". Having a high deductible on prescriptions protects you against an illness that requires expensive maintenance medication.

I could go on and on with actual numbers. When you are getting your quotes, do the math yourself. The cost-benefit of spending an extra dollar on premium should return an equivalent benefit. If you insist on low deductibles you will pay a fortune for a health insurance plan.

Health Insurance Plan Types:

PPO Plans

A PPO (Preferred Provider Organization) is a health insurance plan that utilizes a large network of medical services providers who have contracted with the network and agreed to a discounted rate structure. In most instances the PPO network and the insurance company are separate and distinct organizations. Although, some very large Florida health insurance carriers will recruit and maintain their own PPO network. It will not be uncommon for an agent to tell you that the insurance is underwritten by the Acme Insurance Company but the PPO network is the All America Network. You will find, that unless your carrier advertises during the Super Bowl, the physician will be more familiar with the network than the insurance company.

For the consumer, the most important function that a PPO performs is the repricing of the bill. Let's use an illustration to show how the repricing feature of a network works and saves you money. What I am about to show you is the most important aspect of a PPO plan.

You have major medical PPO plan with a $2500 deductible and coinsurance of 80/20 to $5,000. You all now know what this means. You go to the doctor because you have a stomach pain. The doctor, who is part of your PPO network, normally charges $150 for new patient visits. You present your insurance card to the doctor's staff who will take your card and submit their bill to your insurance company. After a time you will receive an Explanation of Benefits (EOB). The physician receives a copy of this statement. It shows the amount they billed, the amount that was disallowed and the amount you owe. Typically you might owe 30-50% less than the billed amount.

The doctor wanted some more tests done so they scheduled you for a colonoscopy. Again, the hospital will take your card and bill the insurance company. This time they billed for $3500 and the insurance company only allowed $1200. That is what you owe as you have not met your deductible.

This same pattern is true for all PPO providers. You are entitled to the same discounts that the insurance company receives from a PPO provider. These discounts can be very substantial. We have seen $100,000 hospital bills reduced by 80%. Always have the bill repriced.

A PPO plan provides the maximum flexibility in choosing your medical services provider.

Most PPO plans will permit you to go out of the PPO network. The coinsurance is changed and your share of the expenses is higher. Plus, there is no repricing. Hospital bills are frequently negotiable. The hospital wants to get paid and will work with you. Do not be afraid to ask for a discount and payment terms.

HMO Plans

An HMO (Health Maintenance Organization) is a health insurance plan type that relies on the use of a primary care physician. This physician, except for special circumstances, must be seen before you are able to receive specialty care. The popularity of this type of plan has fallen off in recent years due to quality of care issues and the inability of the carriers to maintain an adequate network. Consumers have demanded the right to bring suit against HMO plans and these plans are often the focus of late night comics.

Here are some pros and cons to HMO health insurance plan:

Indemnity Plans

Generally, we find two types of plans in this category; temporary and traditional.

Traditional Plans are a throwback to the plans of twenty or thirty years ago. There are no networks and you can use and physician and any hospital. The lack of a network is a double-edged sword. It means that the fees are essentially unregulated. With a PPO a procedure might cost $10,000. With the indemnity plan, the hospital might charge you $30,000. The insurance carrier could determine that $12,000 is usual and customary. Guess who is stuck with the difference?

The traditional plan makes little sense today since most  PPO plans permit out-of-network coverage at an increased coinsurance rate. The 20-30% higher premium for a traditional plan makes it a poor choice for the consumer.

Temporary Health Insurance or Short-Term Health Insurance Plans are traditional plans that are sold for a limited time period. You can find temporary insurance plans that can be used from 30 days to 3 years. Again, there are no networks associated with these plans. However, the premiums for temporary health insurance is usually much less than a similar PPO plan. Underwriting is also simplified and consists of a few yes/no questions. The plans can often be put into effect within 24 hours.

If you are denied coverage

Finding health insurance coverage after a decline letter is not easy. In most states, it may be impossible. But, here are some possible alternatives:

If you have recently (within the past 60 days) left your job, ask about taking the COBRA plan. This is a continuation of your group insurance.

If COBRA is not available you might be eligible for a portability plan under HIPAA. There are certain guidelines that must be followed and the plans are somewhat expensive.

Medical expense plans have simplified underwriting or in certain instances are guaranteed issue. They have a limited benefit but in many cases are better than nothing.

If you enroll as a full time student, there is a carrier that has a health plan with no health questions. You can drop the courses after 31 days and keep the insurance until age 65.

Temporary health insurance plans often do not ask for height or weight and generally only look back three years for preexisting conditions. This might help depending on your particular situation.