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Your AARP Personal Guide to Buying Health Insurance What you should know. BA9802 (3/06)

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Page 1: Your AARP Personal Guide to Buying Health Insurance

Your AARP Personal Guide to Buying Health Insurance

What you should know.

BA9802 (3/06)

Page 2: Your AARP Personal Guide to Buying Health Insurance

1.

A word from AARP Health Care Options®

AARP Health Care Options is happy to offer you this personal guide to

buying health insurance. We are committed to being a source of user-friendly

health information for people age 50 and over — and to making products

available that can help you stay healthy. Even if you don’t purchase health

insurance through AARP Health Care Options, we want you to make an

informed decision, for your own good health.

Buying health insurance can be confusing, so this guide will help you

understand some of the issues involved. You’ll find questions to ask

insurance companies before you buy, as well as a glossary of insurance

terms. Throughout, you’ll also find the story of Alice, someone who needs

to buy her own health insurance for the first time. We hope her story will

give you insight on how to purchase individual health insurance.

AARP Health Care Options is the name of AARP’s health insurance and service program. It is not the insurer.

Table of Contents

Starting Out Page 2Coverage Page 3Pricing Pages 4–5Research Checklist Page 6If You Can’t Qualify Page 7Comparison Worksheet Pages 8–9Glossary Pages 10–11Notes Pages 12–13

Page 3: Your AARP Personal Guide to Buying Health Insurance

2.

1. What you should knowstarting out

There are some major differences between group health insurance that you typically get throughan employer and health insurance that you buy yourself. The first is that when you get insurancethrough an employer, they may cover up to 85% of insurance premium costs.* Now you’ll bepaying the entire premium (the monthly bill) yourself, so the cost may surprise you.

Also, you don’t just pick a health insurance plan and enroll. The plan has to accept you. If youare more at risk for health issues (or even have current health issues), getting coverage cansometimes be challenging.

That aside, the process may seem familiar. You’ll still encounter deductibles and co-pays. There arecomprehensive (major medical) and catastrophic plans. This handbook explains them all inmore detail, but if you’re confused by any of these terms, there’s a handy Glossary in the back.Ultimately, the plan you choose should fit your needs for both benefit coverage and budget.

*The 2005 Kaiser Family Foundation (KFF)/Health Research and Educational Trust (HRET) AnnualEmployer Health Benefits Survey. Figure based on single coverage.

Meet Alice. She’s 55 and ready forHealth Insurance 101.When Alice decided to start her own business,

she didn’t know what she wanted to do about

health insurance. She knew she could continue

her current health coverage for18 months through

COBRA (for more on COBRA, see the Glossary).

“I have 63 days to decide if I want COBRA, so

I think I’ll investigate buying my own health

insurance — it might be less expensive.

One thing’s for sure, I don’t want to go without

health coverage. It’s just too big a gamble.”

Page 4: Your AARP Personal Guide to Buying Health Insurance

2. What you should knowabout coverage

Once you start shopping for your own health insurance, you’ll find a choice of plans and coverage.

Types of insurance.Traditional fee-for-service health insurance plans allow you to use any provider you’d like andare typically the most expensive kind of plans. HMOs (Health Maintenance Organizations) andPPOs (Preferred Provider Organizations) offer reduced costs as long as you use network doctors.See the Glossary for more details.

Types of plans.Comprehensive (major medical): This type of plan usually covers hospital visits, surgeries,doctor’s visits, routine lab exams, preventive care like pap smears, prescription drugs, and more. It typically has a deductible that you must pay before the plan begins paying benefits.Catastrophic (limited coverage): If you want a lower monthly premium, you may decide on“catastrophic” coverage, which usually covers hospital stays and surgeries in the event of a majorillness — but often doesn’t cover doctor appointments, preventive care, or prescription drugs.Also, deductibles will be higher.Hospital-Surgical: Another way to keep your premiums low, these plans pay toward theexpenses related to hospitalization, which are typically room and board plus doctor charges.Short-Term: This is coverage that lasts for a specified length of time. For example, if youknow you’re going to be between jobs for a few months, you might buy a six-month term policywith major medical coverage. Be aware — this type of plan typically does not cover pre-existingconditions, and many companies may limit you to one renewal.

Services that enhance coverage.Many insurers also offer health care resources as part of their coverage — services that help youfind physicians, learn more about health and wellness, access 24-hour assistance from registerednurses — even order prescriptions online. Make sure you ask if they offer resources like these tohelp you manage your health.

“Catastrophic or comprehensive? What’s best?”Alice soon discovered she had a choice between catastrophic (limited) and

comprehensive (major medical) coverage.“I spend a lot on prescriptions

because of my asthma,” thought Alice,“and there are doctor’s visits for my

allergy shots , plus my pap smears and mammograms, not to mention

my yearly checkup. I might consider catastrophic coverage because it’s a

good safety net just in case something major happens. But I think I’m going

to go with comprehensive coverage — preventive care is important to me.”

3.

Page 5: Your AARP Personal Guide to Buying Health Insurance

3. What you should knowabout pricing

4.

The monthly cost may surprise you.If you’ve ever had health insurance through an employer, they probably paid for most of it —as was mentioned earlier, the average employer covers up to 85% of all employee insurance costs.* Now the total premium will be your responsibility. (On the plus side, if you are self-employed, yourhealth insurance premiums may be tax deductible.) Also, with employer-sponsored plans, there areusually lots of healthy people to offset the claims of people who get sick. With individual healthinsurance, your enrollment application is reviewed through a process called “underwriting” todetermine if you qualify for coverage and what you’ll pay. Underwriting evaluates how healthy youare now and calculates the likelihood of your needing medical treatment in the future.

Good health matters.The bottom line is this: Insurers charge lower rates for people who are healthier. Some companieswill add a surcharge for insuring a person with potentially expensive medical conditions — it’scalled “rating up.” You might be rated higher because you’re a smoker, or because of an ongoingcondition like asthma. And many companies deny coverage to people with serious illnesses likediabetes and cancer. Fortunately, insurance companies may only review your health history forexisting health conditions once — when you first apply. Of course, if you change companies orwant to increase your coverage, your health history maybe reviewed again.

“Look-back” periods.When you apply, you’ll be asked questions about yourhealth history during the company’s “look-back” period.Different insurance companies have different “look-backs” — they usually range from three to ten years. A shorter “look-back” period may be better, especiallyif you’ve had some health issues. Based on what’shappened during your look-back period, you’ll either be accepted, accepted with pre-existing conditionswaivers, or denied coverage.

*The 2005 KFF/HRET Annual Employer Health Benefits Survey. Figure based on single coverage.

“My kidney stones couldcome back to haunt me.”Nine years ago, Alice had a series of

kidney stone attacks and an operation

to remove them.“If I have to report the

operation on my application, it might

affect my acceptance or the cost of my

coverage,” she thought.“I’ll look for a

company that has a shorter “look-back”

period — f ive years or less. Then I won’t

have to worry about it.”

Page 6: Your AARP Personal Guide to Buying Health Insurance

5.

Waivers for pre-existing conditions.If you do have a pre-existing condition, companies may put a waiver in your policy excludingcoverage for that condition for a certain period of time. If you have asthma, for example,coverage may be excluded for a year or two — or permanently. Waiver policies vary, so if youhave a pre-existing condition, be sure to ask the insurance company how they’ll handle coveragefor that condition before you apply.

Evaluating rates.Everyone wants to find the least expensive health insurance. And while lower rates mayinitially be more attractive to you, less-expensive plans may not offer the specific types ofbenefits you need. You may notice higher rates for plans that offer additional benefits, such as prescription drug coverage and preventive care. That’s why it’s important to thoroughlyreview all of your insurance options.

It’s also important to understand how your rate is determined and when and why rates will rise.Your rate is usually first established based on your health history and age. Some companiesrequire exams to determine your current health, while others ask questions to review yourhealth history. Once a company sets your rate, your rate will increase based on a number offactors. Generally, companies raise rates each year due to the rising cost of health care — moreadvanced procedures, better drugs, etc. Keep in mind, your rate will also likely increase as youget older. Be sure to ask companies when and why rates increase.

“These rates aren’t that bad after all.”“I used to receive my coverage through my employer and only paid $51 a month. Once that

ended, I had to look for my own coverage. Boy, was I surprised by the rates.They

were so much higher than I had been paying. I looked into it a little more

and found out that my employer had actually been picking up $284 of

my monthly premium for me. I had no idea my company contributed

so much.The rates I’m seeing now suddenly make sense.”

Page 7: Your AARP Personal Guide to Buying Health Insurance

6.

Now that you understand a little bit more about how individual health insurance works, it’s time to start looking for a policy. These questions and the worksheet on pages 8 and 9 can help you findthe right balance between coverage and cost.

Find the best coverage andplan for your needs.How’s your general health?If you tend to get sick a lot, look for a plan thatcovers doctor’s visits and prescription drugs.Do you have a doctor or hospitalyou prefer? If you choose a PPO or HMO, make sure thoseproviders are in the insurance plan’s network.Do you regularly take any medications?A plan that covers prescription drugs can help. Add up your annual prescription costs todetermine if the plan will meet your needs.Is preventive care important to you?Your annual checkup, blood work,mammograms, and other diagnostic tests aremore likely to be covered under a comprehensive plan.

How you can keep costs down.Are you in great health and want a lower monthly bill? A catastrophic plan with limited coverage may be the right choice —just remember you’ll probably be paying for all of your preventive care yourself. And if your medical needs change later on, you may not be eligible to change to a comprehensive plan.Would you be willing to go with a higher deductible to save money?Some people would rather pay a higher monthly premium to avoid a big deductible payment.Others would rather pay less in monthly premiums because they have the cash reserves to afford a substantial deductible.Are you willing to use network hospitals and doctors to save money?Consider a PPO (which gives you a choice between network and non-network providers) or anHMO (which may limit you to network providers only). Remember, with an HMO, you may have to get a primary care physician’s permission first (a referral) to see a specialist (see the Glossary on pages 10 and 11 for more on HMOs).

“I have to think of the future.”

“I have quotes from two insurance companies,”

thought Alice.“I’m on a tight budget, but the plan

with the lower rate doesn’t offer prescription

drugs or preventive care. I could get the low rate

for a year — then switch — but what if I get

sick? Then other insurance companies might not

accept me. Sure, I’m healthy now, but if I get sick

down the road I may

want that kind

of security.”

4. Your research checklist

Page 8: Your AARP Personal Guide to Buying Health Insurance

5. What to do if you can’t qualify

7.

Alice did her homework.

As she compared plans,Alice thought,“I want a plan that is

affordable and offers me the coverage I need so that I can stay

healthy while I focus on my new business.”Alice looked at plans that offered comprehensive

coverage so that her allergy shots, asthma prescriptions, checkups, and routine doctor’s

visits would be covered. She reviewed the premiums, deductibles, co-pays, and co-insurances,

as well as exclusions for pre-existing conditions. After careful consideration, Alice ended up

choosing a plan that cost her a little more but gave her the benefits and security she really

wanted. She thought,“Now that I have my health insurance taken care of, I can start

working on my future.”

If you’re having trouble finding insurance because of a pre-existing condition, the HealthInsurance Portability and Accountability Act of 1996 (HIPAA) may help. HIPAA laws varyfrom state to state, but many states restrict the ability of insurers to exclude pre-existingmedical conditions from coverage if you were previously part of a group plan, paid your ownpremiums for COBRA coverage, and applied for new coverage within 63 days after having leftthe group plan.To learn more about the HIPAA regulations for your state, visithttp://cms.hhs.gov/hipaa/online.

Use the Comparison Worksheet on the next page to start exploring your coverage options. >

Page 9: Your AARP Personal Guide to Buying Health Insurance

8.

What kind of network and plans do you offer? (Make sure the choices available are right for your needs.)

Will I be required to get referrals from my primary doctor to see a specialist? (You will have more flexibility if referrals are not required.)

Do I have to take a health exam or submit lab tests to apply for this insurance? (Tests and exams indicate that a policy is harder to qualify for. Look for plans that minimize these requirements.)

Are there any medical service limits,exclusions, or pre-existing conditions that will affect me? How long is the “look-back” period for pre-existing conditions? (A shorter “look-back” period may be better; page 4 has details.)

What is your company rated by Standard & Poor’s and A.M. Best Co., Inc.? (Look for a company rated A or higher — ratings are indications of financial stability, so you’ll know the company will be around to pay your claims.)

How much is the annual deductible?

After the deductible is met, what co-insurance applies (90/10, 80/20, etc.) for benefits and/or prescription drugs?

How much is the annual maximum out-of-pocket cost to me?

How much is the monthly premium? (Make sure the premium meets your budget and the plan meets your current and future coverage needs.)

6. Comparison Worksheet

General Questions AARP PHIP* Provider B Provider C

Coverage Questions AARP PHIP* Provider B Provider C

Call at least three insurance companies and get information on several plans with varying coverage and deductibles. Get preliminary quotes based on different “health levels” — youdon’t know how a company will rate your health, so get a range of prices. And don’t forget to call your state department of insurance for complaints and rating reports.

*AARP Personal Health Insurance Plans are insured by United HealthCare Insurance Company.

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Page 10: Your AARP Personal Guide to Buying Health Insurance

9.

What is the maximum lifetime benefitI can receive? (We suggest that you don’t go with anything less than one million dollars.)

What types of pre-authorization or certification procedures are included?

Will my rates go up if I file lots of claims? Can I be singled out for a rate increase for any reason? (“No” is the preferable answer.)

Can you cancel this policy for any reason except non-payment of premium or fraud? (Again, “no” is the preferable answer.)

Inpatient hospital services/outpatient surgery

Physician visits (in the hospital)

Office visits, preventive care, and checkups

Prescriptions

Medical tests and X-rays (radiology)

Skilled nursing care

Mental health care/substance abuse

Home health care visits

Rehabilitation

Hospice care

Chiropractic treatment

Other covered services

Do you have any services that can give me more control over my health decisions? (e.g., physician/treatment locators, health and wellness information, etc.)

What discounts are available that can help me lower my costs? (e.g., prescription drugs, eye care, etc.)

Coverage Questions (continued) AARP PHIP* Provider B Provider C

Benefits Questions AARP PHIP* Provider B Provider C

Services and Discounts Questions AARP PHIP* Provider B Provider C

Page 11: Your AARP Personal Guide to Buying Health Insurance

10.

COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985): Some employers are mandated by law to offer employees who have been let go the option to continue their healthcoverage for up to 18 months. The employee will pay the full premium, up to 102% of theemployer’s cost (the extra 2% is the administration fee). You have 63 days to enroll, and when youdo, coverage is retroactive. Remember, COBRA covers ALL members of your family from thedate of termination, so if your spouse has a pre-existing condition that a new, cheaper policy mightnot cover, you can elect to keep COBRA for him or her. If you’re considering COBRA, be sure toget more information from your employer — and remember, coverage only lasts 18 months.

Deductible: The amount you have to pay for medical services before your insurance companybegins paying benefits. Typically, the higher your deductible, the lower your monthly premium.

Co-insurance: These are costs you pay after you’ve met your deductible. Co-insurance isusually a percentage of medical expenses. For example, many insurance companies pay 80% of medical costs and ask you to pay the remaining 20% — that 20% is your co-insurance.

Co-pays: Co-pays are usually fixed amounts you pay for a product or service, like a $10 co-payfor doctor’s visits or prescription drugs. Often, co-pays are unlimited. For example, even ifyou’ve met your deductible, you’ll still have a $10 co-pay for doctor’s visits.

HMO (Health Maintenance Organization): Typically, this is the least expensive healthinsurance option, but you may be restricted to using doctors in the HMO network, or the HMOwon’t pay. In addition, you must choose a primary care physician and you may need thatphysician’s permission first (a referral) to see a specialist.

HSA (Health Savings Account): The health savings account (HSA) is a tax-advantagedsavings plan (a financial account with various restrictions) that helps cover current and futuremedical expenses.

“Look-Back” Period: When you apply for health insurance, you must report any medicalconditions for which you have been diagnosed or treated during the “look-back” period. Forexample, if a company has a three-year “look-back” period, you have to report conditions thatyou had treated in the last three years. Based on your answers, you’ll either be accepted, denied,or accepted with a pre-existing condition “waiting period” — the time you must wait before your pre-existing conditions can be covered.

7. Glossary

Page 12: Your AARP Personal Guide to Buying Health Insurance

11.

Medical Trends: The rate at which medical costs are increasing due to services beingused more frequently; an increase in the costs for these services; and/or more expensiveservices being used.

Out-of-Pocket Maximums: After you meet your deductible, this is the most co-insurance youcan pay in a single year. Out-of-pocket maximums may or may not apply to small co-pay amounts.

Pre-existing Conditions: Any physical or mental conditions that you’ve been diagnosed ortreated for prior to the effective date of health insurance coverage (the day your coverage begins).

Premium: The amount you pay for coverage, usually paid in monthly installments.

Primary Care Physician: A primary care physician provides, coordinates, or arranges forcare to patients, and takes continuing responsibility for providing a patient’s care.

PPO (Preferred Provider Organization): This health plan option allows you to use in-network and out-of-network doctors, though you’ll pay more if you use out-of-networkdoctors. You do not have to get a referral before seeing a specialist. There is typically adeductible, and you will also probably be responsible for a portion of provider bills (plans often pay 80%; you are responsible for 20%).

Referrals: The recommendation by a physician and/or health plan for a covered person toreceive care from a different physician, specialist, or facility.

Specialist: A physician who has completed an approved residency, passed an examinationgiven by a medical specialty board, and has been certified as a specialist in a medical area.

Traditional Fee-For-Service Health Plans: The most flexible — and usually the mostexpensive — health plans. You may use any provider you want. There is typically a deductibleand co-insurance (plans often pay 80%; you are responsible for 20%). In addition, these plansusually only pay for “reasonable and customary” medical expenses. If your doctor charges more,you will have to pay the difference.

Underwriting: This is a process insurance companies use to evaluate the costs of insuring youand determining if you’re eligible for coverage. It can involve asking medical questions orrequiring health exams. If you are eligible for coverage and multiple rate levels exist, your ratelevel will be assigned based on this underwriting.

Page 13: Your AARP Personal Guide to Buying Health Insurance

8. Notes

12.

Page 14: Your AARP Personal Guide to Buying Health Insurance

13.

Page 15: Your AARP Personal Guide to Buying Health Insurance

P.O. Box 1017Montgomeryville, PA 18936-1017www.aarphealthcare.com/personalhealth01