While many Americans receive insurance products from their employers in the form of employee benefits, an increasing portion of the population is purchasing these products — particularly health insurance — on an individual basis.
Individual insurance, unlike employer-sponsored coverage, is not tied to a particular job and coverage is not lost when employment circumstances change. Individual health insurance is very different than group health insurance. Laws mandate what types of services must be included in individual policies, and the policies often include different features than those required for group policies.
“Individual consumers may be surprised to learn that some benefits that are considered ‘standard’ within group plans may not be included in an individual policy,” says Sue Bergman, a sales executive for JRG Advisors, the management company for ChamberChoice. “But, these standards, such as maternity leave and treatment for substance abuse, can possibly be purchased as optional riders.”
Smart Business spoke with Bergman about individual health insurance, the laws surrounding these plans, and how the plans are affecting the benefits landscape.
What should employers know about the laws surrounding individual health insurance plans?
The laws concerning individual health insurance are different in most states and each state regulates how individual products can be marketed and sold. Most often, applicants are required to complete medical questionnaires and provide health information about themselves and any family members they wish to cover when applying for benefits. An underwriter reviews the information provided within the questionnaire and the risk of a particular applicant is determined. It is not uncommon for an insurance company to request additional information from the applicant or the applicant’s physician.
If the insurance company is unable to obtain the information necessary to accurately determine the risk of a particular applicant, it will underwrite more conservatively, meaning that the assumption relative to the missing information will be negative rather than positive. Once health status has been determined, the applicant will be assigned a rate class and put into a ‘pool’ of other insured individuals with similar health status. Premiums are determined by the claims experience of the entire class of customers, as opposed to just the individual’s claims.
