Expert Commentary

Insurance Products for Uninsurable Chronic Medical Conditions

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.


Personal Risk Management
January 2006

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

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. Expert Commentary articles and other IRMI Online content do 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.

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