Association policies- beware
The Death Spiral: Health Insurance and Out-of-State Associations
Florida state residents Shaneen and her husband Tom were paying $417 for health insurance when she was diagnosed with breast cancer in 1996. By August 2000, Shaneen was told her new rate would be $1881 a month! Tom dropped off the policy but Shaneen, now with a prior condition, was stuck.
Tom and Shaneen drove their RV to Wisconsin and insisted on meeting with a top executive at American Medical Security Group, Inc. to protest their high premiums. She was told the reason for them was because of her “dread disease.” Shaneen was a victim of reunderwriting.
In Florida, out-of-state insurance companies offering policies to associations, who in turn offer them to their members, were not regulated by the state of Florida.
Reunderwriting, or tier rating, is the practice of raising the premiums of people who get ill and file claims while healthy customers’ premiums stay the same. Of course what happens is that the premiums reach a point where the customers with high rates can no longer afford health insurance and discontinue coverage. The company is then left with only the healthiest customers and lower costs.
Shaneen was so angry and horror-struck by the fact that the company would do this and that it was legal. She sought publicity to bring attention to this practice and to change the laws in Florida.
Shaneen's story
I had no reason to know what the death spiral was until after I had breast cancer and my health insurance premiums were raised to $1,881 per MONTH. I recently testified before the Florida Senate and the Florida House of Representatives.
A new (to me) trend in health insurance sales is where Health Insurance Companies come into the marketplace and sell low health insurance premiums. They then make above market premium increases over the next several years. Then they implement the "DEATH SPIRAL." This is an accounting maneuver to make their bottom line look better. Here is how it works.
As premiums are collected, they go into the company's liability column, since there is a potential that these funds will be used to pay claims. The company then "closes a book of business" by canceling a block of policies. The premiums that have been collected over the years from the cancelled "book/block" of business then moves from the insurance company's liability column to their asset column. The policyholders are then told that if they re-apply they will be guaranteed a new policy. The insured are then shifted to an out-of-state association based group, which exempts the company from state regulations in the state they are selling the insurance. The company then doubles premiums.
The people who are well just go to another insurance company for insurance. Those who have developed medical problems during the time they were insured are forced to pay the usurious premiums (which increase 60% per year thereafter) or are dumped into the state high-risk pool. The state high-risk pool becomes overwhelmed, the insurance company introduces a new insurance product to the market and the cycle starts all over again.
I am a 51-year old early retiree (my husband is 61) We started 20+ years ago to save and invest for our retirement and did a good job. When my husband lost his executive position in the early 90's and was unable to find a job that paid above entry level, we retired after careful scrutiny by our financial planner. Ample funds for cost of living increases and reserves for catastrophic events were in place. But we sure weren't prepared for this one.
Now with our health insurance situation we will be forced to pay the high premiums and deplete our savings, go back to work or become un-insured. If we were to opt for paying the high premiums, we forecast that health insurance premiums will cost us upwards of $300,000 until I am eligible for Medicare. Yes, I plan on living that long.
The public shouldn't have to have a PhD in insurance administration to know how to buy health insurance. The death spiral needs to be exposed to the public.
Shaneen Wahl
CONSUMER ALERT: One way to know if you are dealing with an insurance company that may use the Death Spiral on you is that they require you to join an association which is based in a state other than the state where you are buying your insurance.
April 21, 2001
The FL Senate did something that seemed impossible. They amazingly got all of the unregulated health insurance companies to agree to be regulated. (The Senate unanimously passed their groundbreaking bill no. 1210.) That is all companies except one-Golden Rule. Lobbyist for Golden Rule convinced the FL House of Representatives to "GUT" the Senate's bill and totally eliminate any consumer protection by passing their bill no.1439. They said they had one million policies in FL and that they would leave the state causing a health insurance crisis by leaving those without insurance. That would not be true. Instead they will expose those who develop a health problem while being insured with them to be put in the same situation as I am, totally unaffordable premiums. Insurance companies are known to be big campaign contributors. I guess the FL House wanted something other than consumer protection...I wonder what it was? We need to have bill no. 1439 changed into a exact copy of the Senate bill.
May 2001
The Bill was unanimously passed in the Florida Senate, but died in the House of Representatives since it was not heard before the session ended. Lobbyist for the health insurance companies were very busy trying to kill the bill and were successful. The House of Representatives didn't even see fit to pass the portion of the Bill that would require all applications for health insurance by out-of-state companies to contain a disclosure statement warning of the lack of premium regulation. Insurance companies are big campaign contributors and it certainly would appear that the Representatives were more concerned about the contributions than protecting the people of Florida.
A study group, which will meet over the summer, was created to examine the impact of regulating these insurance companies. The Bill will be brought up again next year by Insurance Commissioner Tom Gallagher.
June 2001
The Florida House and Senate have both called a special interim session to investigate rate regulations.
Florida Commissioner of Insurance Tom Gallagher filed a lawsuit complaint against United Wisconsin Life Insurance Co. of Green Bay, Wisconsin citing seven counts of unfair trade practices and violations of Florida's insurance code.
August 2002
Last month, the Florida Department of Insurance suspended the license of American Medical for one year over its use of reunderwriting. A state appeals court has lifted the suspension pending an appeal from the company. Shortly after that decision, American Medical announced it would stop reunderwriting in Florida and switch to the more traditional method of "block rating," where insurers generally charge the same premium increases across a particular policy type. The company now will make the same change in another 20 states where it has reunderwritten individual policies.
2004
n 2004, Shaneen decided to run for FL state representative. Two hurricanes interrupted the campgain and the incumbant won.
RVers beware
Florida has made strides in protecting their residents who purchase health insurance through an association. In checking the Georgetown University Web site, I found that some states do make a note that association policies come under different regulations. Just because a group you belong to offers a policy doesn't mean they understand how it works or have fully investigated them. In most cases, they are happy to offer members coverage at a reasonable premium. Be sure to thoroughly investigate them using the resources and procedures suggested in Health Insurance Options Part 2.
Another practice that has happened in Arizona and Washington (and probably many more states) is that the company goes out of business in that state, thereby stranding all the policy holders. After a year or two, they come back in- perhaps under a different name. They then offer insurance policies again. Of course unhealthy customers with prior conditions will probably not be insured at all. Check with an insurance broker or the state insurance department to see if the company you are interested in has done this in the past.
Jaimie Hall Bruzenak