White Paper Report
How to Buy a Health Insurance Plan:
Use This Checklist to Avoid Making 7 Common Mistakes
C. Dean Richard, JD, MSBA
About the author: Mr. Richard is a seasoned pro in the health insurance business, having been contiuously licensed since 1980. In addition to his insurance background, he holds a law degree (although he does not currently practice) and a Master's in Financial & Tax Planning.
Here is a checklist of 7 things to consider when comparing different
1. Check the current financial stability of the company.
Check the A.M. Best Co. for the current rating of an insurer. This is the leading independent
rating company that analyzes every insurance company. At a minimum,
most experts recommend to limit your options to companies that have a
minimum rating of A-excellent from A.M. Best. As an aside, we currently
know of at least two wacky examples of companies that should be avoided.
One such company is a formerly A rated company that has since been placed
in receivership. Remarkably, this company is still operating in some states,
including its home state of licensure, but its license to operate has
been revoked in other states! Another example is a "new" company
that doesn't have any A.M. Best rating and yet, they try to use this fact
to their advantage by suggesting that they anticipate to have a rating
review within 3 years! You have to do your homework folks!! Do NOT rely
on the agent or representative to share negative information with you!!
On a related point, the Better Business Bureau is completely impotent,
and therefore, irrelevant when it comes to checking out a health plan!
Health insurance is a regulated industry--contact the regulators to check
on the legitimacy of a company!
2. Don't focus on the "little stuff."
Instead, focus on the "BIG stuff." It's not the little stuff
that can wipe you out--it's the BIG stuff! You don't need insurance for
a flat tire on your car insurance, right? So do you really need to have
some little "co-pay" just to go to the Doctor? You know, if
you had no insurance at all, you could easily pay all the doctor's visits
you'd ever need--with the premiums you saved from buying the insurance!
What this demonstrates is that you really don't "need" insurance
for Dr. visits--in fact, you don't "need" insurance for any
expense that you could actually pay for yourself in the absence of insurance.
Therefore, carefully consider the maximum you could comfortably pay out
of your pocket should medical expenses arise, and then purchase an insurance
policy design around THAT figure. For example, if you could comfortably
afford $5,000, then a policy that pays 100% of covered expenses after
a $5,000 deductible would be a nice fit. If you "buy down" the
deductible to say, $2,000, you'll probably pay an additional $2,000/per
year in premiums--and all of that money is GONE if you don't have a claim--you
only get it back if you DO have a claim in excess of the deductible! Doesn't
it make more sense to "bet" on being healthy, instead of betting
on "getting sick" or "having a big accident"? Yet,
this is precisely what you do when you pay extra money just to buy a "lower
3. Avoid plans with "internal limits" on high-ticket items.
For example, if a plan pays "up to" $600/day for intensive
care, then that plan LIMITS your coverage to $600/day, regardless of what
you are actually charged. A plan such as this is out of date on the day
you buy it--and it only gets more out of date with each passing day!
the choice, it may be better to have a plan with no internal limits but with
a $250,000 lifetime maximum coverage, than to have a plan with $5million
lifetime coverage but with so many internal limits that only 30% or maybe
40% of a large claim is actually covered (see example above). To be clear, your best option is to have a policy with a large lifetime maximum and no internal limits, or at a minimum, internal limits found should be universally applied from plan to plan. This is
a critical point!!
4. Avoid plans with excessive limitations and/or exclusions!
In fact, I advise that you read the exclusions and limitations list FIRST
because whatever you find there is automatically NOT covered. Examples
of things to look for include: 6 month waiting period on certain things
(it is irrelevant that you have never had these things in the PAST--you're
not buying insurance for stuff you've already had in the past!); daily
or per diem limitations on benefits; limitations on number of surgical
procedures or number of physicians allowed, no coverage for illness for a certain number of days; no coverage on HIV/AIDS, regardless of contraction method, etc.
5. Avoid plans with hefty "sign-up" and/or on-going monthly
"association dues" or plans marketed as being something "special" for the self-employed.
FACT: There are no"special plans" just for the self-employed,
period! In fact, anyone can join those association plans if they are willing
to pay the association fees.
Many plans are now marketed through nationwide associations--and that
in and of itself is not necessarily a bad thing. Insurance companies are
able to keep premiums down by by-passing certain state mandated benefits
with assocation plans in many states--which is usually a good thing as
long as you don't happen to really, really need those particular mandated
benefits (and if you do really "need" them, then you probably
aren't even insurable in the first place).
What you want to avoid is a plan marketed as being some kind of "special deal"
for the self-employed where the representative spends a majority of the
time harping on the "benefits of joining the association." If
you are looking for such an association, fine and dandy, but if your primary
intent is to purchase a good solid health plan, then be leery of plans
where the representative can't provide detailed answers to the health
plan and instead trys to re-focus your attention on those yummy-sounding
One tell-tale sign to watch for: An agent who suggests several different "add-ons" to go along with the basic plan. A good solid health plan will not few if any "add ons" available--because
everything that should be covered is already included in the one plan--subject
to the one plan deductible! This is a very easy red flag to identify!
TIP: If you are speaking with a representative
of an association plan, ask the representative how long he/she has worked
for that company! Ask how long they have been in the insurance business.
Ask how many clients they have! You will be amazed at the answers, but
you must ask!!
6. Avoid any plan where the agent/representative seems to suggest
that any of your pre-existing health conditions will be accepted without
question and without additional premium or where the agent states that their plan only increased by 5% over the past 2 years (or anything similarly ludicrous).
Many times, these representatives actually get paid per application once
the application is turned into the company--it is in their best interest
to simply get an application signed and submitted with a check. Your best
interest is...irrelevant to these agents. In fact, they do not deserve to be called agents because they are undermining the integrity of the insurance system. What they DO deserve is to be reported to your state's Commissioner of Insurance!
I am constantly amazed at how many people try to use a company's track
record of rate increases to make a decision as to whether to purchase
the plan--literally on a weekly basis I am asked this question half a
dozen times. Folks, it is irrelevant what a company did LAST year with
its rates--irrelevant with respect to NEXT year, that is. It's that simple,
period. End of story!
Well, there is one exception (as with most rules).
If a company exceeded the industry average last year (or the year prior), then that could be a sign of eminent financial trouble.
But as long as a company is within normal parameters of the industry average,
then that is all you can reasonably ask for.
Again, I reiterate
this point because I am utterly amazed that some people can be so gullible as
to believe an agent who suggests that next year's rate increase "will
be" or "should be" this much or that much because...."that's
what we did last year." Ha! Listen folks--if the industry average
last year was 15% and this company only went up 5%, then they've either
been way-overcharging folks for years, OR more likely, they are on the
verge of having huge financial trouble. It just doesn't stack up. Don't
fall for it!! Instead, get that agent to put his "promise" IN WRITING. Then send a copy of it to the state Commissioner of Insurance, with a copy to the president of that company.
7. Exercise caution when doing business with an agent who is new to the business, including agents who work over the internet or even in a company's home office.
One of my favorite sayings
is that it is waaaaay to easy to get an insurance license! In fact--did
you know--it is probably easier to get an insurance license than it is
to get a barber's license in your state! No kidding. And that is not a
knock against the barbers or beauticians either. It is a knock on a regulated
industry that is too loosely regulated, in my opinion.
To be sure, any agent with a valid license is a duly authorized agent. But do not be intimiated by the fact an agent has a license, or has been in business 25 years or more (as I have). ASK QUESTIONS! And if an agent is new to the business, ASK MORE QUESTIONS. Never take anything at face value when it has to do with coverage. Virtually everything an agent represents to you about a plan should be verifiable IN WRITING. Demand--yes DEMAND to see it IN WRITING. And if the written proof varies from the oral statement, red flags should go up!
Here's a classic example. You see--in writing--that a plan covers a surgeon's fee "up to $5,000." When you ask the agent if that is important, she says something like, "Don't worry about that--most surgeries are less than $5,000." If the little bells and sirens did not go off yet folks, I am at a loss as to what to say. In this example, the agent clearly does not have your best interest at heart. Show her the door--and be sure and get her insurance license information and report the incident to the Commissioner of Insurance! This type of sales approach is always improper ethically and likely illegal in most states.
There are many fine, professional insurance agents. Take the time to find one who will keep your best interest in mind--at all times.
Follow-up thought: Many people who use the internet to shop for health insurance are under the impression that they will get a "better deal" if they just go direct to the insurance company. First, this is patently incorrect. You will never get a better deal on premiums, etc. because the actual premium--the final premium--is always determined by an underwriter, following the completion of underwriting. But some home office agents may have a tendency to quote you a lower price, usually because they get paid "per application." They can do this by quoting you a preferred rate, when in fact you will not qualify for a preferred rate with the underwriter. So don't fall for that! (In my opinion, this is highly unethical.) But also realize that the agent you are dealing with at the home office of Company X will NOT be around to help you switch plans to another company in the future (because this will be a conflict of interest). Recommendation: Take the time to find a true professional agent who is independent and who represents numerous insurers! It's well worth the effort.
Bonus Tip: Be leary of plans that utilize small, local networks.
This is a growing problem. Ideally, you want to be part of a true national
network of providers if at all possible. You never know when you may need advanced medical care that is not available locally, and in those situations, you always want to be treated at an advanced (or specialized) facility where your benefits will be recognized as "in-network."
C. Dean Richard
Get Quotes Now
More plans. More options.
See how low your rates can be!
We quote multiple A-rated companies
HSA Info Links
Our agency represents major, name-brand highly-rated companies, including: