I’ll Lay $20 on Black—or—Never Bet Against the Insurance Company

Here in my hometown of Las Vegas, we often hear the above phrase (or at least the first part of it). But you don't have to live in Vegas to hear that or similar phrases. Lately everything seems to be about Vegas in one way or another; TV shows and movies chief among them. The business of gambling is a good way to understand how and why insurance companies operate like they do.

Insurance companies are in the business of gambling, in its purest sense. Gambling is the taking of a risk. But risks can also be minimized. We try to minimize our risk of skin cancer, as an example, by wearing sunscreen. We watch our portions at the dinner table and exercise in an effort to minimize the risks of developing diabetes or heart disease. There are no guarantees, however. And that's where risk comes in. All we're doing is trying to not add anything detrimental to what our genes (or fate) has in store for us. Insurance companies are no different. They implement strategies to minimize undue risk. As a business, they are willing to take over your risk (and subsequent payment) of health problems...for a fee. They will pay out on claims that happen on pure chance but don't want to be on the hook for something that has already manifested itself.

This process of ascertaining the risks involved in insuring someone is called "underwriting" (just a fancy word for qualifying for coverage). The insurance company looks at lifestyles (smoking, drinking, hazardous jobs or hobbies, etc.) and prior health conditions that lend themselves to claim filings to see if insuring someone against future medical bills is "a good bet."

One of the biggest sources of confusion in dealing with health insurance is the concept of pre-existing conditions. Pre-existing conditions, as it relates to insurance companies, only come into play after you have been approved for coverage. A person's health history is oftentimes interchanged with the term pre-existing condition, because, well it's a health condition that exists before the inception of the policy. But getting approved for coverage (underwriting) and having previous or ongoing health issues paid for by an insurance company (pre-existing conditions) are two different things. Put another way, there has to be a contract between you and the insurance company (a policy) before they can pay or deny a claim. Your prior health history can be used to determine if the insurance company wants to insure you at all (or take that bet). Once you're approved for coverage, however, the insurance company will oftentimes have a "pre-existing conditions clause" that protects them from definite immediate claims (no "chance" there) and also people who wouldn't otherwise get insurance but do so because they want certain existing conditions to be paid for by the insurance company. The conditions aren't severe enough or costly enough on their own to decline a person for coverage, but when added up could cost the insurance company some serious money.

Why should we care if the insurance company has to pay more claims? Because for every dollar they lose, they charge us more money in premiums. There are laws that help us, however. In most states, a pre-existing conditions clause can only look back at previous health conditions six months before the start of the policy to see if you've had treatment for anything. Unfortunately that includes prescriptions. As such, the insurance company doesn't have to pay for that condition for one year. After the year, they pay for it like any other condition.

If you have previous coverage without a 63-day gap (part of the federal HIPAA law, see my previous column HIPAA, COBRA and PHI, oh my for more on that legislation), then however long you had coverage with the previous company will be credited to your current coverage's pre-existing condition clause, reducing or even eliminating it altogether.That's why it's so important to keep yourself covered at all times. If you are subject to an employer's waiting period (usually 90 days), that typically doesn't count as a 63-day gap. In addition, if you decide to get "gap coverage" or a short-term policy, be sure it is of the "creditable coverage" type. HMO's (and HMO-based policies like some POS plans) on the other hand, oftentimes don't have pre-existing condition clauses. They also have open enrollments, meaning they don't underwrite for health history at least once a year, depending upon your state.

So while the prospect of you getting into a car accident or having your appendix out may be a gamble on the winds of chance, having a solid insurance policy is a sure bet.

Until next time, stay healthy!