During the last economic bust, I got laid off and couldn't afford the monthly COBRA payments for my health insurance. I applied for an individual plan through Blue Cross.
I was 28 at the time and had no health problems. I was thin and athletic. In fact, I'd done a triathlon and biked from San Francisco to Los Angeles twice.
I got a letter from Blue Cross saying I was denied. They told me it was because my medical records showed I'd gone to the doctor complaining of stomach pain. The pain had long since gone away, but Blue Cross said if I wanted insurance, my doctor would need to fax a note guaranteeing I didn't have stomach cancer. He faxed the letter, and eventually I got a plan.
It makes you wonder, though, if Blue Cross didn't want to insure me — a healthy 20-something — how on earth do actuaries determine who's a good risk and who's not?
"It's very scientific and fact-based," says Jeff Fluke a senior underwriter with the risk management company Ingenix in Minneapolis. Fluke says actuaries first calculate average health costs over a broad population like 28-year-old women or 50-year-old men. Then the underwriter adjusts those averages based on your medical history and health status — your height and weight, and whether you have high blood pressure, asthma or hay fever.
"Maybe there's a heart condition," Fluke says. "How long ago was it? What were the treatments? Are you on treatment now? What are the medications you're taking? Because some medications [are] expensive and some aren't."
These complex algorithms boil down to: Will you cost the insurance company more money than the insurer can make off your premium? And if by insuring you — a potentially high-cost customer — does it drive up rates and thus drive other, healthier customers away?
"This is a very crude world where insurers and customers are very short-term oriented," says Tom Miller, a fellow at the American Enterprise Institute, a conservative think tank in Washington, D.C.
"Unfortunately, there's a fair amount of rapid churning, particularly in the individual insurance market, because people aren't in it for a lot of time," he says.
Because there's a lot of churning, insurers typically look at the return on their investment over 18 months. That means there's little incentive for insurance companies to encourage policyholders to get regular checkups and screenings.
The companies also want to avoid paying for predictable high-cost events like childbirth. And that, says Miller, makes the individual market a punishing place for young to middle-aged women. Childbirth, he says, is really a family cost.
Women Pay More
Miller adds that both younger and older men don't go to the doctor as often as women.
Women are also more likely than men to get annual exams and see the doctor when they're ill. And in most states, they pay a price for it. For example, in California, women pay up to 39 percent more than men for similar individual policies, even when maternity benefits are excluded.
California and several other states are considering legislation to ban the use of gender for individual policies. Ten states — Maine, Massachusetts, Minnesota, Montana, New Hampshire, New Jersey, New York, North Dakota, Oregon and Washington — already have a ban in place. Insurers stopped using race as a basis for coverage decades ago.
"Now what people are asking is where can you draw the boundary and say it's OK to discriminate based on this trait, but not others," says David Magnus, who directs Stanford University's Center for Biomedical Ethics.
"One view is you shouldn't discriminate based on characteristics over which you don't have control," he says. "That doesn't really work or apply in this particular market since the No. 1 factor that is taken into account for health insurance is one over which people don't have control, and that's age."
Spike In Individual Health Insurance
Despite concerns over its fairness, the individual health insurance market is likely to see an influx of applicants, especially in the current economy with employers cutting back on health benefits and laying off workers.
And what if you're one of them? Well, there's not much you can do to protest higher premiums based on gender, age or other factors if your state permits it. You can shop around. Web sites like eHealthInsurance.com help you compare plans with similar benefits.
And there's some new help for workers laid off after Sept. 1, 2008. If you had employer-sponsored health insurance and qualified for COBRA coverage, under the new stimulus bill, the federal government will pay 65 percent of your premium for up to nine months.
And that even includes laid-off workers who initially turned down COBRA coverage because they thought it was too expensive. They now have a second chance to sign up.
Sarah Varney reports for member station KQED.