The perils of buying your own policy.(The Unraveling of Health Insurance, part 2)(Buyers Guide)

If you live in the wrong state, have any type of illness, or are too young (for Medicare), too rich (for Medicaid), or too broke (to pay steep premiums), you might be shut out of the health-insurance market. None of those factors will stop you from getting group health insurance through most employers, but they can entrap the 16 million or so Americans who buy their own policies. This group includes the self-employed, employees of small firms that don't offer medical insurance, people between jobs, young adults moving off their parents' policies, widowed or divorced people who have lost their spouse's group coverage, and people who retire early and lose their group health coverage before they're 65 and old enough for Medicare.

If you need to buy your own individual or family policy, you're entering a perilous market in which good advice is scarce. This report will tell you about the traps you'll face and how they can affect your premiums and coverage.

The companion piece, "Shopping for Your Own Policy," on page 38, gives guidance about choosing coverage, based on a CONSUMER REPORTS study of policies available in six U.S. cities, funded by The Commonwealth Fund, a New York-based philanthropic organization. If you're turned down by insurance companies, you can consult the table on page 40 for information about your state's safety net.

Needing to buy your own health insurance makes you one of the unwanted children of the insurance marketplace. Consider the case of Carolyn Weaver, who over the last decade has fallen into virtually every trap in this market. In 1992, Weaver bought her own health-insurance policy from Washington National Insurance Co., under an arrangement called a "group discretionary trust" (see Trap 2 on page 36). With a deductible of $500, the policy cost $1,665 a year and because a test revealed that Weaver had a blood factor that might lead to rheumatoid arthritis, it excluded coverage for arthritis and for most diseases of the spine.

Shortly after Weaver got the policy, Washington National hiked her premiums almost 64 percent, attributing the increase to the higher cost of medical care. Premiums kept rising and Weaver had to increase her deductible to $5,000, to afford the policy. By this year, because of Weaver's advancing age (she is now 63) and rising health-care costs, the annual premium had reached $18,500. The final straw: Washington National has canceled her coverage because it is leaving the individual-health-insurance market.