Personal Finance Tips

Perhaps this is an unnecessary statement of the obvious, but the point of insurance is to give people a financial safety net. Should an emergency or disaster strike, money you would struggle to find is paid out by your insurance company. But the squeeze has been on for the last decade as medical costs and the prices of essential drugs have been rising fast. In fact, so fast that the insurers cannot pass on all the increases to their policyholders. It was hard to raise premium rates while the economy was doing well. It became impossible to raise premiums when the recession hit without there being investigations by each state’s Commissioners for Insurance and complaints from everyone else. There comes a point when the insurer cannot get any more blood from the stone and has to sacrifice profits. This has left the medical profession, the hospitals and clinics in a winning position, while the pharmaceutical industry’s profits have continued to rise despite the recession. At the other end of the spectrum, the patients are the losers. There are some who discover the small print in their policies denies cover for the very illnesses they have. There are others whose savings are not enough to pay the deductibles and co-payments. And then there are those whose policies are cancelled when they make a claim for a chronic disease or disorder.

There is a new piece of research from the Commonwealth Fund, an independent, non-profit body. In 2007, it carried out a detailed survey among 2,600 people aged between 19 and 64. When their coverage was analysed, 20% were found significantly underinsured. Why was this happening? Because they were already spending more than 10% of their income on health coverage, whether as premiums, deductibles or both. When the underinsured were added to the uninsured, this represented 42% of adult Americans. Like the uninsured, this forces the underinsured to think twice before they have treatment with more than half either refusing treatment or struggling with debt because of treatment.

In the push for healthcare reform, the focus has been on the uninsured. But this fails to recognize the injustice suffered by the underinsured. No one should be forced to choose between refusing needed treatment and potential bankruptcy. It is therefore going to be an interesting year in prospect as the reform slowly comes into force. Both the poor and the middle class need access to cheap health insurance with reasonably comprehensive coverage. This will further squeeze the insurance industry because it will be denied the right to refuse coverage to those with pre-existing conditions and will be forced to establish group health insurance for those who have struggled to find affordable plans. In all of this, the key to success will be the ability of government and the insurers to impose more control over costs. President Obama has negotiated with the pharmaceutical industry and there is some agreement to hold down prices for those in Medicare and Medicaid. The for-profit healthcare industry also sees some self-interest in moderating its price increases and has given undertakings to the Administration. If some of the pressure is removed from the insurance industry, premium rates will stabilize and the reforms should offer a more fair system to all with a health plan. We can only hope for the best while we wait and see what happens.

Many people are complaining about their health insurance costs, having a dramatic increase in rates over a short period of time. Some policyholders have noticed that their rates increased by 30% over the last two years and that definitely rings a bell, when a good portion of your income is spent on health insurance. In this time when every spare dollar counts, people are looking for ways to minimize their expenses and insurance, whether health, car or homeowners, is the first thing that comes in mind when cutting costs. Some people choose to drop health coverage altogether, ending up with astronomic bills for any medical service they get. Others are more careful with their decisions and first investigate what other types of health insurance can bring to the table. Here are some things to consider if you want to minimize your insurance costs.

Should I get individual or group health insurance plan?

There are a lot of questions about group and individual health insurance. Of course, group plans are very convenient in the sense that you can insure your entire family and pay out a single premium rather than have multiple separate policies, which only multiply the annoying paperwork. However, group health insurance usually has higher rates as it should guarantee that even high risk customers within the group have adequate coverage. This, of course, makes the healthier group members pay for the risk they share with the less healthy members. Such a situation can be acceptable if there are different health issues among different members. But if your family is healthy in general it would be more cost effective to purchase separate individual policies for each member, because the rates in individual plans are based on your particular health situation and if it’s OK then you will get much lower rates than with a group health insurance plan.

Outline your exact insurance needs and get an appropriate plan

If you are looking for cheap health insurance you first have to determine what your exact insurance needs are. Analyze your conditions, see how often you go to the doctor and what particular services you are using most frequently, and choose a plan that gives you the base rates for your exact needs. With so many different plans out there on the market you should definitely find the one that will give you cheap health insurance and will address all of your needs to the proper extent.

Finding cheap health insurance while self-employed

Those workers who are self-employed often find it hard to get adequate coverage for a low price. The group health insurance benefits that an employer can give their workers don’t apply here, and in most cases self-employed specialists have to go with independent individual health insurance plans that can sometimes be quite expensive. However, if you are leaving a workplace with good group health insurance benefits, you may fall under COBRA regulations in certain circumstances and continue receiving group health benefits while already being self-employed. If your previous employer didn’t have any group health benefits, it would be better to go independently.

This February, the Department of Health and Human Resources has issued a report identifying an alarming trend for insurance companies to seek premium rate increases. This is not limited to one or two states. This is not limited to one or two percentage increases in the rates. This is all the leading insurance companies asking for the right to significantly higher premiums: in Michigan hikes of 56%, in California hikes of 39%, and so on. If this only affected small numbers of policyholders, it might have passed unnoticed. But, with millions of policyholders affected across the country, these rate increase requests have attracted the full scrutiny of the federal government. Secretary Sibelius has been leading the attack, using the requests to push the reform agenda forward.

Because of the national anger, some companies have paused. WellPoint had proposed the increases take effect from March 1. Any increases, even if approved by the states, will now be delayed until May at the earliest. This decision is partly in response to the summons of WellPoint’s chief executive officer to Washington to justify the requested increases. Insurance companies find themselves in a difficult political situation. Their management teams accept a duty to maximize profits for the benefit of the stockholders. They look around at an America seriously affected by the recession. Increasing numbers of people are unable to afford the premiums, some because of unemployment, others because of a squeeze on credit. More worrying from the insurance industry is that more healthy people are deciding not to insure at all. This means the group of people left holding policies has a higher percentage of those with existing health problems. Without more healthy people in the group paying premiums and not claiming, it becomes more expensive to insure those less healthy people who remain. It is also a verified fact that hospitals and healthcare service professionals have also been increasing their fees and charges. The pharmaceutical companies have increased the price of almost all the most commonly used drugs. The insurance industry is under pressure from both sides. As Secretary Sibelius points out, however, this is not a completely accurate picture. Every year, insurance companies are required to submit reports to all the US states in which they are licensed to sell policies. This data shows many companies actually increased the number of policyholders during 2009.

The market in health insurance plans is complicated by the political situation. Democrats and Republicans are two armies unable to agree a truce long enough for some reform to be made. As it stands, there is no immediate likelihood that medical costs will be controlled. If the costs continue to rise faster than inflation, insurers will have no choice other than increasing their premiums. If they do not, they will not have enough cash in hand to pay out on all the claims. This means, for the average person, it will become increasingly difficult to find cheap health insurance. For those with a pre-existing condition, group health insurance will be the only option but, for those plans, premiums are rising at their fastest rates. For years, it has been obvious that the healthcare industry is broken. It would be ironic if, having come this close to some meaningful reforms, we not only saw the reform bills lost in Washington, but also found every major insurer imposing massive premium increases. That really would be the final nail in the coffin.