Turned down for health insurance? 5 options

This post comes from Mark Chalon Smith at partner site Insurance.com.

More than one-fifth of people seeking health coverage are denied by insurers, with Montana, Alabama and Arkansas among the states having the highest rejection rates, according to a new study.

Twenty-two percent of applicants nationwide aren't approved for individual and family health plans, usually because of pre-existing medical conditions, says the HealthPocket report, "Health Insurance Application Rejection Rates Rising?" 

"That's clearly the most obvious reason," says Steve Zaleznick, HealthPocket's executive director of consumer strategy and development. "Carriers are certainly taking that into consideration when they are doing their underwriting and determining what they want to take on in terms of risk."

He says that health reform provisions under the Patient Protection and Affordable Care Act that take effect in 2014 will prevent insurers from rejecting applicants with pre-existing health conditions, even those with major physical problems that could incur high hospital costs. But until then, consumers should be aware of what challenges they may face securing coverage in their home states.

"We want to promote consumer research and get people to ask the right questions when seeking health insurance," says Zaleznick. "That's the prime reason for the report."

HealthPocket, a Sunnyvale, Calif.-based group that analyzes medical insurance firms across the country, based its study on U.S. Department of Health and Human Services data for more than 9,400 insurance plans. The report listed several states where insurers frequently decline applicants:

• Montana, with a 45% rejection rate for health coverage
• Alabama, 40%.
• District of Columbia, 37%.
• Arkansas, 35%.
• Alaska, 34%.
• New Mexico, 30%.
• North Dakota, 29%.
• Oregon, 29%.
• Maryland, 29%.
• Pennsylvania, 27%.
• Delaware, 27%.
• West Virginia, 27%.

The report (which includes health insurance rejection rates for every state) doesn't specify why it's harder to gain coverage in those states. But Zaleznick notes that fewer health insurers tend to operate in those states and may be able to impose tighter approval guidelines because they face less competition.

As for the states that don't reject any applicants -- Zaleznick points to New York and Massachusetts as two of the better known -- the reason is simple: They already have laws mandating that insurers provide coverage, regardless of a person's medical issues.

The study also named the individual insurers with the highest rejection rates and in which states:

• John Alden Life Insurance Co. -- declining 73% of applications in South Dakota.
• Assurant Health -- 71% in Utah.
• Assurant Health -- 58% in North Dakota.
• Time Insurance Co. -- 56% in Kentucky.
• Assurant Health -- 56% in Idaho.

But Assurant told USA Today that the figures can be misleading because the insurer often offers rejected applicants an alternative policy that usually includes pre-existing conditions. That coverage, they said, may be more expensive than the coverage they originally applied for.

Steps to take until health reform is law in 2014

Zaleznick advises those with pre-existing conditions to research insurers and to ask questions of their representatives. If an insurer says it can't cover you, then check out the next one. It's frustrating, especially when you're struggling with overwhelming health issues, says Zaleznick, but some insurers are more flexible than others in providing coverage.

But what if you're still rejected? Zaleznick suggests these options:

• Insurers of last resort. Check your state's designated insurer that's required to provide coverage to everybody. Created under health reform, pre-existing condition insurance plans (PCIPs) provide insurance coverage to people who previously have been denied insurance because of a pre-existing condition. But be aware that it could be costly. "The expenses may be high," says Zaleznick, "but if you really need medical care, it could be extremely valuable for right now."
• High-risk pools. Currently, 35 states ensure that people get health insurance, regardless of their physical condition. The National Association of State Comprehensive Health Insurance Plans provides a list and other information at its website. Again, you may have to pay quite a bit more for coverage.
• Government help. Government programs such as Medicaid and the State Children's Health Insurance Program offer coverage to some low- and moderate-income families. To see what's available and if you qualify, visit GovBenefits.gov.

WebMD, the health website, also had a pair of novel approaches:

• Open a business. Some people with pre-existing conditions get group insurance by opening a business and listing themselves as the sole employee. "Using this 'group of one' approach, you have the protections of any group insurance -- and can't get turned down because of a pre-existing condition," says WebMD. But not all states allow this, so check with your state department of insurance.
• Join a professional group. Some professional organizations, chambers of commerce and unions offer insurance that can be cheaper than regular health insurance, and, in some instances, may be more lenient when approving an application, according to WebMD.

More on Insurance.com and MSN Money:

• Health reform sticks: Now what?
• Caregiver's guide to car insurance
• Pre-existing conditions not always obstacle to good life insurance rates
• Kicked off parent's health plan: Now what?
• Cut your medical bills by 30%
• When aging parents lack insurance