Such predictable events as high school and college graduation create a natural opportunity to help families reevaluate their changing insurance needs. Often, a simple question about a young adult's post-graduation plans uncovers the need not only for automobile and renter's insurance but also for medical insurance.
A short-term individual medical policy can give graduates and their parents financial protection and peace of mind until the graduate secures full-time employment and a new, employer-sponsored policy takes effect.
A Time of Need
Each spring, many families across the United States celebrate an important rite of passage: children's graduation from high school and college. It's a time when young adults assume greater independence and responsibility for their lives and when parents shift their financial focus to preparing for retirement. But as parents and graduates focus on the future, it's important to address a near-term financial exposure that can have enormous long-term consequences.
In most cases, family medical plans stop covering young adults after they no longer are full-time students. That means graduates -- and by extension their parents -- could face thousands of dollars in medical costs if an accident or serious illness occurs during the often unpredictable transition between graduation and full-time employment.
How widespread is this problem, and what are the consequences? The 2000 U.S. Census revealed that about 30% of all college graduates ages 21 to 25 live at home with one or more parents, as do 15% of those between 26 and 30. And according to a recent report by the Commonwealth Fund, almost 40% of college graduates and 50% of high school graduates who do not enroll in college have no health insurance coverage at some time during their first year after graduation. That means each year, hundreds of thousands of young adults join the ranks of the uninsured, making this group the fastest growing segment of the uninsured population.
The consequences are at best dangerous and at worst devastating. The Commonwealth Fund survey revealed that about 50% of young adults ages 19 to 29 forego necessary care because of the costs involved; about half have problems paying health-care-related bills.
This hardly is surprising given the rising costs of medical care. According to data collected by Assurant Health, a climbing accident could result in more than $450,000 in medical expenses, and a case of pneumonia can cost $75,000. Worse yet, these costs come at precisely the time graduates least can afford them. Already saddled with college debt, and with new bankruptcy legislation that holds individuals responsible for their medical debts, a single health problem could affect a graduate's financial position for years to come.
Flexible Options
The individual medical market has responded to this growing need by developing affordable, dependable, and easy-to-obtain short-term policies that give graduates and their parents security and peace of mind. These policies meet the needs of young adults in transition in several ways, including:
o Protecting against catastrophic illness. Short-term medical plans protect policyholders from catastrophic events by capping the total out-of-pocket expenses they would pay. For example, a policyholder who suffered a spinal cord injury that cost $623,000 to treat paid only $266.40 for a six-month policy. Another took out a 90-day policy to cover himself until his new employer-sponsored policy took effect. When he was diagnosed with testicular cancer a month later, he benefited from seamless coverage because his short-term policy covered the $100,000 of expenses incurred during his transitional period.
o Lower cost. Short-term plans usually are more affordable than permanent insurance plans because the insurer usually is not providing coverage for pre-existing conditions. They also are about one-third the cost of continuing coverage through such government-regulated extension programs as COBRA. There are many ways to match the right short-term plan to a prospect's needs and budget, including adjusting the deductible amounts and co-insurance options selected. Rates usually vary by state and age.
o Flexible coverage periods. Short-term policies enable policyholders to pay only for the specific time period they require. Policies usually range between 30 and 185 days with exact lengths varying by company and state.
Some companies allow graduates to designate specific time periods if they know the policy duration they need. For example, someone who has obtained a new job but has a 45-day waiting period for benefits to begin may purchase a short-term medical policy for exactly 45 days. In some cases this person could save additional money by making a single payment.
Alternatively, he or she can purchase a six-month policy (or 12-month policy in some states), make monthly payments, and stop paying after he or she secures alternative coverage. This flexibility costs a bit more, but policyholders receive ongoing coverage as long as their policy is active for conditions that develop within the policy period.
o Simple enrollment. Applications usually consist of a series of yes/no questions. Some companies offer convenient online applications and can make coverage available the next day. Some also provide an e-mail link to the actual insurance contract so policyholders can access it at any time.
In advising clients, it's important to understand that these policies are not for everyone. For example, these policies usually exclude pre-existing conditions, so those who have chronic conditions that require ongoing treatment or who require expensive medication should consider COBRA benefits or state high-risk pools.
In addition, graduates who are not offered employer-sponsored coverage should not use short-term insurance as a band-aid. Instead, they should obtain a permanent individual medical policy to ensure continuity of care.
Meeting Client Needs
As brokers and agents penetrate this attractive market, they will find a broad selection of short-term product offerings from a variety of carriers. They can be effective advocates for their clients by considering the following issues:
o Continuation of benefits. Policyholders could face financial hardship if they require medical care that extends beyond the policy limit. Some carriers will extend coverage for sickness or injury that occurred within the original policy period subject to time, severity, and maximum benefit provisions.
o Strength and focus. Should a catastrophic illness or injury occur, policyholders need to have the peace of mind that their insurance carrier has the financial strength to ensure claims are paid appropriately.
o Clear policy language. Look carefully at the policy language to make sure it is clear and specific -- especially in the area of pre-existing conditions. Vague language creates loopholes that, particularly if the claim is severe, could allow a carrier to deny coverage.
Building Trust
Each year, hundreds of thousands of graduates suddenly find themselves without insurance coverage at a critical time of life. Producers can position themselves as trusted advisers -- and build the foundation for profitable long-term relationships -- by helping recent graduates find cost-effective medical coverage during their time of transition.
With a small investment of time, producers can learn the nuances of short-term medical insurance and help customers find flexible, low-cost solutions that meet their specific needs. Simple applications also ensure an efficient sales process for producers and a positive insurance experience for their new customers.
David Andrews is vice president of Product Management -- Short-Term Medical for Assurant Health. His experience prior to joining Assurant includes 15 years in consumer-packaged goods marketing, business-to-business marketing, and health care marketing and management, including positions with Sara Lee, McCain, Amoco, and Nestl?. Mr. Andrews is a member of the Society of Insurance Research.
Beth Hill joined Key Financial Group, Inc., in 1994 and is the head of the Individual Health Insurance department. She works directly with insurance company underwriters to expedite pending cases. She also pre-screens client health histories to place clients with insurance companies and manages the processing of individual applications.
