There are several ways in which an individual may obtain health insurance.  And in the comment thread following my post - “Health Insurance Coverage Protects from Catastrophic Health Costs (!?!) - I promised to discuss various aspects of health insurance.  Today we will discuss some fundamental differences between obtaining individual or group health insurance plans.

The most popular way to obtain insurance is through an employer who is in a position to negotiate a group plan (for two or more individuals) with a private health insurance company.  Group insurance may also be obtained through a professional organization, an alumni association, or other membership type organization.  Only fourteen states currently allow a self-employed individual to qualify as a group of one.  

The idea behind a group plan is to spread the risk of claims over a wider selection of people, which would theoretically have a mix of healthy people who don’t file claims and people with serious illness or childbirth.  The insurance company sets the premium rates for the group to cover the average amount of claims, plus profit.  It is important to note that each state regulates health insurance plans, except....

Some corporations and businesses may choose to have a health insurance company administrate a self-funded group plan in which the employer creates a fund to pay health claims and purchases stop-loss insurance to cover claims exceeding the resources in the fund.  Self-funded group plans were made available under Employee Retirement Income Security Act (ERISA) and are not subject to state regulations.  If one insured person in the group suddenly experiences expensive health claims (such as is associated with MS), premiums for all group members would be adjusted (raised) the following year to cover the increased expense.  At times, employees might not even know that their company’s health benefits are self-funded.

Another option is to purchase a policy on the individual health insurance market whose plans were originally designed to provide insurance to unemployed or self-employed persons not covered under an employer’s plan.  Individual health policies are often more expensive and offer fewer benefits, but are portable and guaranteed renewable in most circumstances.  Each state has rules governing individual policies.  It’s important to note that persons applying for individual policies will need to go through the underwriting process which determines the risk to the insurance company and makes the applicant subject to adverse selection.

For individuals deemed uninsurable by traditional underwriters, thirty-three states have High-Risk Pool guaranteed-issue plans.  Virginia is not one of those states.  In other states, such as Ohio and Idaho, premiums for high-risk plans are limited to 2.5 of regular underwritten policy rates.  If that were the case in Virginia, my underwritten policy (which was obtained when I was considered healthy and insurable) would cost $9450 annually instead of $3780 as it does now.  That’s a big jump in premium costs.