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Illusory insurance

Published Aug. 31, 2005

Like 150,000 other Florida residents who don't have health insurance through an employer, Shaneen and Tom Wahl turned to an out-of-state association that offers individual policies. The monthly rate for coverage by American Medical Security Group was $417, reasonable for individual insurance. But after Shaneen was diagnosed with breast cancer, the premiums rose quickly to $1,881 a month.

The Wahls were the victims of a practice called "reunderwriting." Florida law doesn't allow a state-regulated insurance company to raise a policyholder's premium based on a change in health. But using a legal loophole, American Medical and other companies can offer policies through out-of-state associations that recalculate the policy's cost each year. The association the Wahls joined is incorporated in Ohio, where health insurance is not regulated.

Florida's Chief Financial Officer Tom Gallagher wants to close that loophole. A bill pending in the Legislature (HB 999) would make out-of-state insurers play by the same rules as state-regulated companies. Gallagher tried unsuccessfully to get the law changed in the past two legislative sessions, but he believes new leadership in the House and Senate gives the bill a chance this year.

In addition to reunderwriting, other questionable tactics are available to the out-of-state companies to jack up rates. Federal law won't let insurers refuse renewal of an individual policy. So the companies will analyze a pool of insured individuals, and those with the fewest claims will be offered a new, supposedly more generous policy. That leaves people with the most expensive claims in a separate insurance pool whose rates are then increased substantially. In that way, the companies can weed out less-profitable policies.

Such tactics are illegal for policies regulated in Florida. Some residents subjected to these tactics by out-of-state companies have seen their premiums grow by 60 percent a year or more. Many have had to borrow money or mortgage their homes just to afford their insurance. Others have avoided treatment or lost their coverage.

The tactics are profitable for the companies, but unconscionable. While the initial premium for such a policy may look reasonable, the protection is illusory because when a policyholder really needs the insurance, it becomes unaffordable. Traditional group health insurance works because it spreads the cost evenly among a broad group of people rather than punishing those with high medical expenses.

American Medical and the other companies say that by forcing them to abide by Florida law, the state will increase the cost of insurance coverage for individuals. A policy offered by those companies may cost less, but it is no bargain when it provides a false sense of security.

Closing the loophole won't solve all of the problems faced by Florida residents seeking health insurance. It will, however, assure them that the policy they purchase will be there when they need it.

The Legislature should return credibility to the individual health insurance market.