Helping Boomers Through The Major Medical Maze

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Financial advisors who help affluent boomers find major medical coverage say the search can be difficult for boomers who are not eligible for guaranteed-issue policies under the Health Insurance Portability and Accountability Act of 1996.

Boomers who need help finding coverage include early retirees, executives who are between jobs and entrepreneurs who are finally doing well enough to think about insurance.

Boomers who have had group coverage from employers with more than 20 employees usually qualify for COBRA continuation benefits, and many states require carriers that insure smaller employers to offer special conversion policies to departing employees.

HIPAA guarantees that boomers who exhaust COBRA benefits can get individual coverage, if they are able to pay the premiums.

But HIPAA protection applies only to boomers who apply for COBRA benefits within 45 days of leaving the group plans. Advisors note that an affluent boomer who procrastinates and waits too long to fill out COBRA paperwork will lose both COBRA rights and HIPAA rights.

Self-employed entrepreneurs and wealthy individuals who have never had to work at all may also lack access to HIPAA policies.

Boomers who have to buy coverage through the regular individual market fall into two categories: those who live in states with community-rating laws and those who live in states that allow medical underwriting in the individual market.

Community-rating laws require carriers to charge healthy policyholders and sick policyholders the same or similar rates. Insurers and other critics argue the laws drive up costs for all responsible parties by giving individuals a perverse incentive to wait to buy coverage until they are already very sick.

New York is an example of a state that has a community-rating law and is big enough to hold on to several carriers that still sell individual health policies. The policies are expensive, but they provide decent coverage, observers note.

In some smaller states with community-rating laws, carriers have pulled back from the individual health insurance market, and individuals may have trouble finding good coverage at any price, advisors say.

In states that allow medical underwriting, “it doesnt matter if youre affluent or not,” says George Collett, a principal at Collett-Ragland Financial P.L.C., Phoenix.

Healthy, affluent boomers in states that allow medical underwriting should have an easy time finding reasonably priced policies, but affluent boomers who suffer from chronic or severe health problems, such as asthma or high blood pressure, may have trouble getting any kind of health insurance, even if they are able and willing to pay high rates for policies that exclude coverage for preexisting conditions, Collett says.

Some states use risk pools to cover residents with serious health problems. But the risk pools often have waiting lists, and the risk pool in Florida has been closed since 1991.

The risk pools that function reasonably well often have limitations that make them particularly unappealing to affluent boomers who want protection against catastrophic medical expenses. In California, for example, the out-of-pocket costs for risk pool coverage are low, but the pool pays a maximum of only $75,000 in benefits per calendar year.

So what can an advisor do to help affluent boomers who are not eligible for HIPAA policies?

Advisors recommend that other advisors check first to see whether boomers qualify for veterans health benefits or coverage through a spouses policy.

In the 1980s, advisors might have suggested that self-employed clients apply for health coverage through trade groups or other associations. Back then, associations had enough buying power to get insurance for their members on a guaranteed-issue basis.

Today, when self-employed people apply through associations, “they find themselves being individually underwritten anyway,” Collett says.

AARP, Washington, does offer a limited-benefit indemnity hospitalization plan from a unit of UnitedHealth Group Inc., Minnetonka, Minn. But AARP notes that the plan, which pays a maximum of only $10,000 per surgery, is medically underwritten.

Along the same lines, advisors say, a Medical Savings Account, which combines high-deductible health insurance with deductions for contributions to a special savings account, works much better for self-employed boomers who are healthy than for those who have health problems.

“The MSA is a pretty decent vehicle,” says Mark Hinkle, chief operating officer at Employers Select Plan, Cleveland, Ohio, a firm that sells health insurance and employee benefits.

But many of the insurers that sell the high-deductible MSA policies insist on rigorous medical underwriting, advisors say.

Early retirees fall into two categories: owners of small businesses and everyone else.

Many owners who want to retire hang on to their businesses for years just to keep the health insurance, Hinkle says.

Self-employed professionals and executives at larger companies who are retiring early may be able to slide into the small-group category by setting up small companies. Other affluent boomers who have serious health problems might be able to cope by moving to states with laws requiring carriers to sell individual coverage on a guaranteed-issue basis.

Affluent boomers in states without good guaranteed-issue health coverage options could self-insure. But Paul Fronstin and Dallas Salisbury point out in a study released earlier this year by the Employee Benefit Research Institute, Washington, that the federal government has not yet provided any tax breaks for individuals who want to set aside cash to fund future medical expenses.

Creating a personal health savings vehicle “would not only make health insurance more affordable but might spur financial planners to focus on health care expenses much more than they do today,” Fronstin and Salisbury write.

When boomers must self-insure, Collett recommends they put the cash in a savings account or some other safe, liquid vehicle, such as a short-term certificate of deposit.

“This is a deep-reserves type of investment,” he says.

Another challenge affluent boomers who self-insure face is lack of access to the price breaks that managed care plans negotiate for their members. In some cases, the discounts that a plan negotiates can do more to cut a patients out-of-pocket costs than the insurance does.

Some companies sell health discount cards that offer preferred-provider network discounts without providing health insurance. The companies set up the card programs by renting access to the same provider networks that big, well-known managed care companies rent.

An effective health discount card program “certainly would help” the affluent uninsured, Collett says.


Reproduced from National Underwriter Life & Health/Financial Services Edition, July 28, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.