Insurance Products for Uninsurable Chronic Medical Conditions
January 2006
As one with Parkinson's disease, I want to
enlighten those affected by chronic illness about information you need to know
about both individual and group insurance products. Subsequent articles will
explain government insurance programs and also provide an in-depth illustration
of how to use all these tools to help develop a long-range insurance plan.
by Jack Hungelmann
Corporate 4
Insurance Agency, Inc.
Even though there are certain types of insurance that you will not qualify
for any longer because of your illness, there are many ways that you can plug
some of the gaps and minimize the damage. Some creative insurance planning while
still employed, combined with knowing and understanding all the tools available
to you, can greatly reduce potential future financial strain on you and those
close to you. Your ultimate goal should be a well-balanced long-range plan that
identifies your strategies for protecting yourself against the risks of major
medical bills, long-term disabilities, premature death, and long-term care expenses.
Following are the insurance products to consider.
Group Health Insurance
Generally provided by and at least partially funded by an employer, the employee
usually has little or no choice of features. The principal advantage of group
insurance is that coverage is typically available to newly hired employees without
medical questions, making group insurance a good option for covering preexisting
chronic medical conditions. Coverage typically ends when the employee's job
ends.
Individual Health Insurance
Characterized by having to prove evidence of good health to qualify for a
policy, preexisting conditions often cause the application for insurance to
be denied or the medical condition to be excluded. The major advantage of individual
coverage is that it can be continued to age 65 with no risk of cancellation
or price increases specifically because of health conditions that develop over
time. Individual coverage is a particularly good option for someone with a chronic
illness who purchased the policy when still in good health, prior to the symptoms
of the illness manifesting themselves. It is also a good option for healthy
caregivers and children.
Group Long-Term Disability Insurance
Generally provided by the employer, new hires are typically eligible for
coverage regardless of preexisting health conditions. However, preexisting health
conditions are typically excluded either until the employee has gone 12 months
treatment free or had the coverage for 24 consecutive months. Benefits are usually
for 60 percent of salary, payable to age 65 if disabled, but are offset by any
benefits received from workers compensation, Social Security, or even any other
group plan. Group disability benefits are taxable, which means a disabled person
will end up taking home only about 45 percent of their salaries—not 60 percent.
Group disability coverage has no cost-of-living adjustment factor that increases
benefits yearly to keep up with inflation and also often does not include proportionate
benefits for partial disabilities, known as "residual" disability coverage by
the insurance industry. (A disadvantage for those with many types of chronic
illnesses who can often work part-time for many years before being totally disabled,
as I am currently doing.)
Some of these group policies do offer an option to convert the group coverage
to an individual policy if you leave the job. The conversion coverage is usually
less broad, and the pricing higher, but still a good option for people with
existing disease. If you have a disabling chronic illness and are still actively
working yet cannot qualify for an individual disability policy, one option is
to seek a new position that offers group disability benefits that include coverage
for preexisting conditions, residual/partial disability benefits, and the right
to convert to an individual policy if you leave the job for whatever reason.
Individual Long-Term Disability Insurance
To qualify, you must provide evidence of good health. A major advantage is
that the policy can be kept to age 65 regardless of job changes. It is usually
guaranteed renewable to age 65 and oftentimes the pricing is locked into age
65. Benefits are tax-free because the premiums were paid for with after-tax
dollars. There usually is no offset for workers compensation benefits, meaning
you can collect both at the same time. There also is no offset for group benefits
you receive from an employer. You do have the choice when purchasing a policy
initially to decide whether or not to include an offset for Social Security
benefits. A good policy should include benefits for partial ("residual") benefits
to age 65, a future purchase option to increase your coverage regardless of
health later, and cost-of-living adjustment rider that will increase your benefits
while disabled by around 4 to 5 percent a year.
Individual policies offer a lot more flexibility in terms of choices of benefits
and features. Once you have qualified for an individual policy, as a rule, never
drop it, even if you get some additional coverage from an employer. If you cannot
get individual or group disability coverage on yourself due to your illness,
or if you are already disabled from your illness and have a spouse, I recommend
really loading up disability coverage on your spouse. If they become disabled,
not only have they lost their income but you may very well have also lost their
physical help in coping with your disease, requiring you to spend additional
dollars for a caregiver for yourself and possibly your spouse too.
Group Life Insurance
Employers typically pay for a base amount of life insurance for their employees,
usually either for a flat amount (i.e., $50,000 each) or for some multiple of
salary, commonly one times salary. Additional amounts of life insurance are
usually available to employees at their cost, on a payroll deduction basis,
subject to some limited underwriting. My advice is to take the free coverage.
If you're still in good health and could qualify for individual coverage, pass
on the supplemental coverage because that coverage is normally available for
less in the open market. Plus, unlike group coverage, individual coverage won't
cease when your job ceases. If you can't qualify for individual coverage for
whatever reason, then take all the group coverage you can get your hands on.
At termination of employment, most group policies offer the option to convert
to a more expensive permanent life insurance policy that you can continue indefinitely.
If you have a chronic illness that makes you uninsurable for individual life
insurance and you leave your job or go on disability benefits, it's probably
a wise idea to convert.
Individual Life Insurance
Individual life insurance is available to anyone who can qualify medically;
it comes in two forms—insurance coverage for the duration of your life, called
permanent insurance, and insurance for a certain period of time, typically 10,
20, or 30 years, called term insurance. My advice is to buy term insurance if
the need is temporary and permanent insurance if the need is permanent. If you
are covering your family during the childrearing years, term insurance is smarter
and a fraction of the cost of permanent insurance. But if you're a 60-year-old
caregiver desiring to provide your husband who has a debilitating illness a
level of ongoing care if you die, permanent insurance might be a better choice.
If you have a spouse who is or will be a caregiver for you, buy more than the
usual amount of life insurance—enough to not only replace income but also enough
to hire a caregiver for you.
Long-term care insurance provides funds to hire assistance with activities
of daily living such as bathing, dressing, toileting, eating, etc. A good policy
provides benefits anywhere—in a nursing home, an assisted-living facility, a
hospice facility, or even at home. I recommend a benefit time frame of at least
10 years or unlimited if available (i.e., Alzheimer's and other dementia). Unfortunately,
evidence of good health is required for approval. If you're reading this, desire
the coverage, and have a deteriorating chronic illness, you're out of luck.
(I'm in the same boat as you. Not having the coverage at age 50, I contracted
Parkinson's and am no longer eligible for it.)
However, having coverage on your caregiver is now doubly important. You do
not need long-term care insurance if either your assets are so minimal that
you qualify for the Medicaid program (or you're willing to spend down your assets
until you qualify for the program), or if you are financially independent enough
to cover the long-term care costs out of your investment earnings without depleting
the principal much. In 2006, long-term care costs range from $65,000 to $100,000
a year.
Make sure the company you choose meets two criteria. First, they have been
awarded the highest financial rating of A+ or A++ by the A.M. Best Company.
(This rating information is available online at www.ambest.com or at your local library.) You want someone solid enough to be around 30 years
from now when you need the coverage. Second, they should have a history of never taking a rate increase on an existing
policy. With long-term care costs rising faster than the rate of inflation,
companies that raise rates could raise your premium over the years to a point
where you have to drop the policy just about when you need to collect because
you can no longer afford the premium.
Medicare Supplement Insurance
This is critical insurance to have if you're receiving Medicare benefits.
Medicare has some significant coverage shortcomings—a limited number of days
of room and board hospitalization coverage, no coverage outside the United States
or Canada, no automatic coverage for prescription drugs (unless you elected
the optional coverage available January 1, 2006), and no coverage for the physician
charges that often exceed what Medicare allows for certain procedures. It is
therefore essential that a Medicare supplement policy be purchased—but not just
any Medicare supplement policy. What separates a good Medicare supplement from
a not so good one is that the good policies cover hospitalization expenses for
up to a year or more beyond what Medicare allows, cover care received outside
United States or Canada, prescription drugs with a reasonable out-of-pocket
annual maximum exposure, and cover 80 percent or more of the excess charges
that Medicare disallows that you are still responsible for. Note that your Medicare
supplement policy and the Part D. drug coverage can be—but do not have to be—with
the same insurance company.
It is important to your peace of mind to know that federal law gives you
6 months from your Medicare start date to receive the very best Medicare supplement
from any company, guaranteed regardless of how poor your health is. (Starting
in 2006, this 6-month open enrollment period also applies to Medicare's new
Part D. prescription drug coverage.) This means that when your current individual
or group health policy ends at age 65, for example, you immediately qualify
for Medicare and the right to buy a top Medicare supplement as well as any Part
D. drug coverage, with no interruption in coverage at all and no preexisting
condition exclusions. Health coverage you can keep for the rest of your life!
Obviously, it's critical that anyone with a chronic illness make sure that they
apply for both the Medicare supplement policy and the Part D. drug coverage
within that 6-month open enrollment period. However, the Part D. drug coverage
option by law does have an open enrollment period November 15 through December
31 of each calendar year in the future.
See the second article in this series addressing
government programs. See the March article for examples from my own client files illustrating how to apply all these programs
to the life of a young person with a chronic illness, in this case Parkinson's,
and caregiver.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.