How to buy health insurance - includes related article on types of businesses denied insurance - Cover Story

Nation's Business, Oct, 1992 by Roger Thompson

Howard Bolnick, president of Celtic Life Insurance Co., another leader in the small-group market, agrees. "They [Quotesmith] promote price only as the chief criterion in picking a policy, and that's very dangerous" because it fails to take insurer quality into account.

But a price list can be useful, says Hostetler. "It's a good way to get a feeling for the quality of the broker working for you. Run some of the insurance company names [on the list] past your broker, and find out whether he can talk about specific problems."

Above all, Hostetler adds, "don't fall in love with the [price-list] printout."

Why shouldn't I buy the cheapest policy available?

"Price has to be a big part of the buying decision," says independent agent Buckley. But he adds that the cheapest policy isn't necessarily the best one. Kadlec says that you may start out with a low price that is aimed at winning your business, then get a sizable rate increase when the renewal notice arrives.

To avoid this problem, Kadlec says, "What you need to be looking for is the insurer's rating philosophy"

Find out whether the insurer bases your renewal increase on the experience of a pool of small-business groups within your geographic area, or on your own company's claims experience. Pooling helps stabilize increases by spreading risks among the companies in the group, while individual rating can lead to increases of 50 percent, 100 percent, or more.

As a result of pooling, says Kadlec, John Alden customers have received premium increases this year averaging 9 percent to 15 percent.

Apart from rating philosophy, what else should I know about an insurer?

Is the company financially sound? Most companies are. But more than 100 life and health insurers have failed since 1985, including Blue Cross and Blue Shield of West Virginia in 1990. Its collapse left 51,000 policyholders with $42 million in unpaid health-care bills.

Several rating services provide information on the financial health of insurers. The services include A.M. Best, Moody's, Standard & Poor's, Duff & Phelps, and Weiss Research. Brokers have access to one or more of these rating services.

A.M. Best, the most widely quoted, rates a company's financial health on a scale from A for superior to D for below minimum standards. It's a good idea to pass over companies with low ratings. In fact, Hostetler advises taking a conservative approach. He favors companies with a Best rating of A or A . There are plenty to pick from-240 in 1991.

"When I buy insurance," says Hostetler, "I don't want to bear any risk. That's the carrier's job. My risk is my deductible and my coinsurance--period."

What about buying from an association?

Association plans are popular because they allow small firms to join a pool and use their collective leverage to get coverage for less than they would have to pay otherwise. For certain high-risk professions that are routinely denied coverage by commercial insurers, association plans offer a much-needed source of insurance.

There are two basic types of association plans: insured plans, which purchase coverage from a commercial insurance company, and self-insured plans, which pay claims out of premiums collected from the members.