January 8, 2008

Why is my Association Health Insurance so expensive?

A frequent question that I receive is "Why is my Association Group Plan so expensive?"

Whether you work for a local or national association, trade union or other affiliated professional organization, you need to read your insurance policy carefully. Many plans are not true group plans, but rather supplemental coverages or endorsed products that may or may not offer a discount.

Insurance companies require "true group" cases to have a minimum participation percentage. Although it varies by company, most plans require at least 70% of their eligible employees to be included in the companies health plan. Ineligible employees may be part time, seasonal, newly hired or employees that have elected to be covered under another plan, which is often their spouses coverage. Insurance companies also usually require the employer to pay for a large percentage of the employees medical costs.

These facts are not true with an association. Members are not employees. Many individuals are self employed or independent contractors. The insurance company and association can not require these members to enroll in the plan offering, therefore the actual participation rate may be poor. With the uncertainty of the actual number of participants, the insurance company must actuarially charge a higher premium rate or cushion in the plan design.

An association group plan does not mean that the premium will be lower or cheaper for member. It merely means that a member can join the plan, usually without medical underwriting to qualify for coverage. This creates a new problem for the sponsoring insurance company. Sick people enroll in a group with an already low percentage rate among eligible participants. This factor also contributes to higher rates. Many older associations are eventually dropped from the insurance carrier for poor claims experience and lack of plan profit. Others experience large annual premium increases. Healthy people find alternative less expensive coverage, creating a large "polluted pool" of more sick people, without the benefit of receiving the premiums from the healthy population. Often healthy or younger people are overcharged to pay for the high claims experience.

Before you join an association sponsored plan, don't jump in without first checking the premium rates against the open marketplace. You may be able to purchase a small group plan or individual coverage for less money, better benefits and more plan variety. In California and several other states, small groups with (2 -50) employees can often qualify for Guaranteed Issue coverage. Incorporated spouses that are both officers of that company may even qualify as a 2 person group. This is a popular option in the Real Estate community. Be an informed shopper and compare the pro's and con's before buying insurance. For more information about association, group and individual plan options, visit QuoteBroker. This site easily compares plans on-line in minutes.

Now is a good time to shop for insurance , especially if you are looking for an HSA plan, (Health Savings Account) or to begin a new year with a new plan annual deductible requirement. Proper planning can save your business or family thousand of dollars each year.