Help Prospects Understand Factors Affecting Health Insurance Costs

By Paul Colley

Health insurance is one of the most important insurance products your client requires. Health care is expensive these days. In fact, a mere 3-day hospital stay can cost $30,000. Although people purchase health insurance coverage to reduce those costs to something manageable, coverage also can be very expensive.

As an insurance agent, it is your duty to make sure that your clients understand the nuances of what they are buying. Health insurance agents play a key role in strategizing their clients’ financial plans. Here are a few things you must explain to them when helping them to select the right coverage.

What does the plan cover?

According to the Affordable Care Act (ACA), health plans for individuals and small businesses must provide coverage for the “10 essential health benefits.” For large employers, the rules for insurance are a little different, although most of them cover similar benefits.

If you are selling some older plans that started before the implementation of the new health reform law in 2014, make sure your clients are aware of it especially if their health care plan fails to cover these services. Also, explain if they can renew these plans or whether they should switch to a new plan as older health coverage plans don’t offer all the consumer protections provided by newer plans.

Which hospitals and doctors are in the plan network?

Your clients should have a clear idea of what they are getting into. Give them a list of hospitals, imaging centers, laboratories, doctors and pharmacies that are in their plan's network. Several state health insurance marketplaces have links to provider directories.

Ask your clients to check and double-check if their desired health care facility and doctors are in the network of the health care plan before they purchase it. This will help you avoid any future confusion.

What is the cost of the health plan?

In general, your clients pay for health care in two ways: the monthly premium and the out-of-pocket expenses when they receive medical care. The out-of-pocket expenses are a combination of coinsurance, deductibles and co-pays. Tell your clients the pros and cons of each method. For example, paying a higher premium upfront means they have to pay less while receiving medical care and vice versa. Also, see if your client is eligible for income-based subsidies to lower the premium cost even further.

In addition, you must make your clients aware of other factors that affect health care costs.

Factors affecting health insurance costs

The premium for a private health insurance plan is equal to the sum of two factors:

• The average amount your client/insurer wants to pay
• A loading factor reflecting your client’s costs of operating the plan

The premiums are subject to change depending on the proposals and certain other factors. This means the cost of the same plan under similar circumstances can vary depending on the insurer’s lifestyle, physical, medical and personal risks.

Explain the physical and medical risk factors

Obesity: In general, obese people have to pay significantly higher premiums as they have higher health risks. An individual with a high body mass index usually suffers from or can develop various diseases including heart and joint problems, sleep apnea, and diabetes. Besides, people who are obese need specialized treatment and equipment even for treatment under normal occurrences.

Tobacco use: If your prospects use tobacco, they will pay higher insurance premiums. In worst-case scenarios, insurance companies may penalize such applicants by refusing to provide any coverage. This is also applicable for former users, even if they have quit using tobacco last several years. Former users also have a higher risk of cancer.

If your prospect is a tobacco user, recommend a plan that provides coverage for smoking-cessation products such as nicotine gum or nicotine patches; however, these products must be prescribed by a doctor.

Age: What is the age of your prospect? For younger individuals, the premium prices are comparatively lower as they have fewer diagnosed/undiagnosed medical conditions than older people.

Pre-existing medical conditions: Such health conditions can be costly and therefore insurance companies charge more if your prospect has a pre-existing medical condition. However, the ACA eliminated denying medical coverage for pre-existing conditions, so even if your client was denied coverage earlier, they will be able to obtain coverage under the law.

Family history: If your prospect’s family has a history of certain ailments or medical conditions, the premiums are again likely to be higher.

It is therefore recommended to discuss the medical condition of your prospects in details and do background check in order to review their risk profile.

Evaluating lifestyle and personal risk factors

Your prospects’ professions will impact their premiums. Those exposed to radiation or hazardous chemicals, or who work in construction sites or in places with high injury rates end up paying much higher insurance premiums. You must study the risk factors and the benefits your prospect can claim, should they have an accident.

In addition, individuals who have extremely sedentary jobs also may end up paying higher premiums. The cost of the insurance premium is even affected by where your clients live. If their neighbors or coworkers pay high health insurance premiums, chances are your clients will pay more for health insurance unless they move to a safer, healthier area.

Your clients’ marital status also may affect their health insurance premiums as it is considered that married people live longer and are comparatively healthier than single people. Finally, if your clients are buying health insurance for the first time, they are likely to be charged a higher premium; hence, ask your clients to buy a smaller policy at first and go for a bigger one after a couple of years to save money on premiums.

Paul Colley is an attorney at Colley & Colley, based in Austin, Texas. Paul may be contacted at [email protected].