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Three years ago, Ivy Emery left her job at Aveda Corp. to work as an independent hair stylist at an Uptown salon.
No longer covered by Aveda's group health insurance, Emery applied for individual coverage for her husband and herself. Her husband, a self-employed construction worker and a smoker, was accepted. Emery, then 32, was rejected.
The denial letter from Blue Cross and Blue Shield of Minnesota listed three reasons: She was using topical medication for acne, she had once sought emergency care for a migraine and she was on Paxil, a drug for anxiety and depression.
"It was just insane," she said, her voice rising at the memory. "They wrote 'acne.'"
An outraged Emery found herself a member of a club nobody wants to join: the Uninsurables.
It's a bigger club than you might think. Each year, one in six Minnesotan applicants for health insurance in the individual market is denied coverage because of a variety of pre-existing conditions.
The market is small but growing fast.
In 2002, there were 192,942 enrollees, or 3.8 percent of Minnesotans, in the individual market. By 2007, the number had climbed to 246,190, or 4.7 percent of the population.
Most Minnesotans have never ventured into the individual market, but if they did they might be surprised by its rules.
"Once you get individuals out there trying to shop for insurance, the [companies] will slice and dice those people, take the healthy people and charge them for whatever package," said Judy Waxman, a vice president at the National Women's Law Center in Washington. "This is why we want to get away from people being judged individually. It's not really insurance."
Ironically, the conditions that can cause a denial are sometimes the very reasons why consumers seek insurance in the first place.
In Minnesota, the most common reasons for denial are obesity, mental health conditions, hypertension, diabetes and cardiovascular disease. But there are less well-known reasons insurers consider on a case-by-case basis: chemical dependency, allergies that require costly injectable drugs, a previous C-section, previous use of infertility medicine or something as simple as being pregnant.
Blue Cross and other insurers say they face a dilemma. If they took in too many sick people, they'd have to raise everyone's premiums.
"We understand people are going to be very upset and surprised [when they get denied]," said Craig Ashby, director of individual products at Medica, the state's second-biggest health insurer after Blue Cross. Denials help ensure a "competitive price for the vast majority of people," he said.
In states such as New York, where insurers are required to take all applicants, healthy people sometimes put off buying insurance until they get sick. The result: Premiums tend to be higher for everyone, according to a study commissioned by America's Health Insurance Plans. The association is urging the Obama administration to consider a system in which insurers must accept all applicants but all consumers must buy insurance.
Group vs. individual
About two-thirds of Minnesotans get group coverage through their employers, where health is not a factor for coverage. The rest are covered by federal and state plans, by policies in the individual market, or simply are uninsured.
But many employers are asking employees to pay more of the cost, to the point where some employees are dropping company coverage and buying cheaper, leaner policies on their own -- or going without.
But the individual market isn't like group insurance.
"In the individual market, people can and do get denied for things that are automatically covered in the group market," said Bob Schmitz, president of Schreifels & Associates, a benefits consultant in Brooklyn Center.
Blue Cross and Blue Shield of Minnesota said its denial rate is 15 percent. Medica says it's in that range, while HealthPartners declined to be interviewed for this report.
To further complicate matters, underwriting guidelines vary by insurer and can change from one year to the next.
Denied applicants may appeal. Sometimes a letter from a physician can help. Or they can go straight to the insurer of last resort: the Minnesota Comprehensive Health Association, or MCHA, a state pool for sick people who have been rejected by at least one private insurer.
That's where Emery and her husband ended up. They now have a toddler and pay a monthly premium of $427 with an annual deductible of $15,000. (A Blue Cross spokeswoman said the insurer doesn't comment on individual clients as a matter of policy.)
Emery is now applying to nursing school in a quest to get a job with health insurance.
Some think women applicants have it harder than men. Last year, the National Women's Law Center published a report titled "Nowhere to Turn: How the Individual Health Insurance Market Fails Women," citing disqualifiers such as pregnancy and a previous C-section.
Women in Minnesota fare better than elsewhere, said the center's Waxman. Unlike some other states, Minnesota prohibits plans from charging higher premiums for women compared to men of the same age and health status. It also has MCHA, where premiums are capped at 125 percent of comparable private plans.
Some worry, however, that as the weak economy pushes more individuals into the high-risk pool, MCHA will become overextended.
Already, MCHA members spend over $100 million more annually in medical bills than they pay in premiums. That shortfall is now covered by a 2 percent premium tax on certain other segments of the insurance market. MCHA may seek legislation to expand that tax to the rest of the market, said Lynn Gruber, MCHA's chief executive. "We have to," she said, "because it's not sustainable."
'Don't get mad'
Deborah Morse-Kahn, 56, of Minneapolis, applied for individual coverage three years ago after she lost her job at the University of Minnesota. She's not sure why the first insurer rejected her. "There was a veil of mystery over it," she said. But she's convinced that "age was the biggie."
She had a history of hypoglycemia, or low blood sugar, and was taking prescriptions for restless leg syndrome and for nausea associated with menopause. She had also sought psychiatric counseling in the past.
What she remembers clearly, though, is her insurance agent walking her through the process -- and predicting a rejection.
Her agent warned her ahead of time not to get mad, said Morse-Kahn, now self-employed as a public historian and writer. "She said: here's what they [the insurance companies] have to do, here's what we'll have to do [apply to MCHA], and you're going to get your coverage because this is Minnesota."
Chen May Yee • 612-673-7434