Funding Sources for American Health Care

Health Care Funding by Source

Employer-sponsored Health Insurance

According to the U.S. Census Bureau, funding for health insurance in the United States has three major sources. The largest and perhaps least recognized source is employer-sponsored health insurance. According to Census Bureau estimates, in 2012 a majority of Americans (55%) got health insurance as a benefit from their employers. Though generally not seen as a subsidized form of insurance coverage, this insurance is funded using premium dollars that are deductible from the employer’s taxable income. The money paid by the employers for employee health insurance is not counted as taxable income paid to employees. Therefore, both employer and employee benefit from income tax provisions that support including health insurance as an employee benefit. Nevertheless, as a result of the rising cost of health care, a greater share of the out-of-pocket cost of health care has been shifted to employees and benefits have been restricted as employers have faced premium increases out-pacing inflation.

Government Funded Health Insurance

The federal government is the second major source of funding for health care. Federal funded care includes the Veterans Administration, Tri-Care, The Indian Health Service (Department of the Interior), Medicare, and Medicaid. Medicare is funded through a combination of payroll taxes on W-2 income and insurance premiums paid by beneficiaries. Medicaid is funded by a combination of state and federal taxes. The others are all paid from taxes collected and funds appropriated to specific government departments and agencies. An estimated 21.5% of Americans have government funded health care.

Individually Purchased Health Insurance

The final source of funding for health care is the individual insurance market. Approximately 6.8% of Americans buy their insurance directly from insurance companies. Prices on the individual market are generally higher than group policies because the risk pools are smaller. Additionally, individuals traditionally were charged more for having certain health conditions or based on gender. Insurers were allowed to charge women more for the same policy than men, for example.

Uninsured Individuals

An estimated 16.6% are uninsured. Those who are undocumented are not allowed to enroll in insurance policies, but the majority are American citizens by birth. These uninsured citizens include those who have a pre-existing health condition that led to their exclusion from insurance, those who are low income but don’t qualify for Medicaid because they are able-bodied and don’t have children under the age of 18, and those for whom insurance is simply too expensive because of their age, gender, or health condition.

The primary focus of the Affordable Care Act is to help the uninsured and underinsured get affordable coverage. Small business owners and employees will find help getting insurance, as will individuals who must purchase their own insurance. The law requires that all insurers offer 10 Essential Health Benefits in their policies as a way of ensuring that risk pools for higher cost conditions are large enough to make the coverage accessible to all who need it. The Affordable Care Act does not change Medicare benefits except that preventive services are now more affordable and the “donut hole” in the prescription benefits plans is being closed.

Graphics courtesy of Advanced Knowledge Resources, Inc.


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Mom “Forced Into Medicaid” A Blessing in Disguise?

Washington Apple Health logo

Nicole Hopkins’ opinion piece in the November 21, 2013 issue of the Wall Street Journal is headlined, “ObamaCare Forced Mom Into Medicaid“. Ms. Hopkins, a resident of Brooklyn, NY, describes her mother’s situation as a low-income resident of western Washington state and suggests that the opening of Medicaid to low-income adults such as her mother is actually a form of oppression that snuffs out personal dignity and systematizes “learned helplessness”. Granted, her mother is angry that she was not given the option to purchase a policy on the state marketplace, but the assumption that continuing to spend well over 25% of her income on a catastrophic, bare-bones insurance policy is a better use of her limited resources bears a closer look. It may be that in the long run, this change in the way her health care needs are financed will be recognized as one of those proverbial “blessings in disguise” about which we sometimes hear.

The Story In Brief

Ms. Hopkins’ mother is 52 years old. She is looking for regular work that would provide employer-sponsored health insurance but has been unable to find any. She works as a substitute para-educator in the local school district. Her current income is below the federal poverty line (FPL) — her daughter notes in the article that her mother has long known that she qualified for Medicaid (Washington Apple Health) in Washington state, though as an able-bodied adult without children under the age of 18 she might not actually have been able to get that coverage.

Mother has a long history of supporting herself and her children. She was easily able to purchase health insurance for the entire family from her income when the children were young. Once the children were grown, she tried a career change, becoming a licensed real estate agent. As many other self-employed people discovered during the Great Recession, paying clients proved too few and far between to cover expenses. In 2011 she gave up her license and began looking for other ways to support herself. (No unemployment benefits for the self-employed who don’t get enough clients.) Work as a substitute teacher was available and she took it. She is self-motivated, determined to make her own way in life, not asking for any hand-outs: a woman who lives out the American ideal of the self-sufficient, independent, “fully functioning member of society”.

For the past two years, she has purchased an insurance policy for $269 per month that covers catastrophic health care needs. Such policies typically have high deductibles, offer little access to regular medical care, don’t provide coverage for brand name prescriptions or services such as maternity or newborn care, and before the Affordable Care Act (ACA) could include annual and lifetime limits on claims payments made. For the coming year, the premium for a new policy that will be compliant with the ACA’s requirements will cost $415.20. If we assume Mother’s income is under $957.50 per month (FPL) since she has been income-qualified for help for the past couple of years, the premium she has been paying takes a minimum of 28% of her monthly income. The ACA deems premiums greater than 8-9.5% of monthly income to be unaffordable. The new premium, at over 43% of her income, is out of the question.

Going to the Marketplace

Washington is one of the 14 states that have set up their own insurance marketplace. The website is working reasonably well, as is typical of the sites set up by the individual states. Mother was able to create her account, enter her particular information, and find her options for health insurance. The shock came when she discovered that she was eligible for Medicaid and that no other policy outside of Washington Apple Health was open for her to purchase.

She was mortified. In her experience as a middle-class woman, accepting help from the larger community (i.e., federal and state governments) is shameful. The notion of a social safety-net that is available for everyone during times of need is hard to accept, especially when one is first confronted with the reality that he or she is truly  experiencing a time of need. Since the belief system under which most Americans live, whether religious or not, is based on the Calvinist notion that our financial success or failure is a reflection of whether we are in good-standing with God or not, being poor is seen as reason for negative judgement from our fellow citizens.These judgements are not necessarily conscious, but having a low income or being “poor” leaves people stigmatized.

Certainly some people are poor because they have made unwise choices in their lives, but others have followed all the rules, done everything “right” and still been unable to move into a comfortable middle-class life. “Falling” into poverty from the middle-class is very hard to swallow.

How Could This Have Happened?

Ms. Hopkins notes that Mother was always able to provide insurance for herself and her children and blames the ACA for making insurance unaffordable now. This is a common and very understandable reaction. After all, what 52 year old woman needs maternity and newborn coverage? Those with children under 19 may need pediatric dental insurance, but still … And so the ACA’s Essential Health Benefits get blamed for the cost of insurance.

What most people outside of the insurance industry have not seen is the degree to which the price of health care and the price of health insurance have increased over the past 20-30 years at a much faster rate than inflation. Additionally, they don’t see the difference in premium that is based on age of the insured.

When Mother was younger, her insurance was much less expensive in real dollars and as a percent of family income. Additionally real income was higher. (Wages have not kept up with inflation over the years.) Policies all included high cost services such as maternity and newborn coverage. Most had reasonable deductibles and copayments, so families could get care as needed. As the cost of care skyrocketed, policies became more restrictive in terms of benefits in hopes of keeping premiums affordable in both the individual and small group markets.

Most Americans got (and continue to get) their insurance through their employers or the federal government (Medicare, the Veterans Administration, and military benefits). The cost of their insurance has increased, but not as dramatically as that for individuals and small-business owners and employees. The risk pools for the latter are too small to provide the cost savings that can be obtained through larger pools.

In California, where I am licensed, in one region the cost of a minimum coverage policy similar to the catastrophic policy Mother has in Washington, but including all newly required benefits and deductible maximums, varies in price on the marketplace from a low of $194 per month at age 25 to a high of $580 per month at age 64. At age 45 it would cost $279 and by age 55 it jumps to $431. These prices seem similar to what Ms. Hopkins is reporting as the price for a new policy from her mother’s current insurer. Insurers must offer identical policies and identical pricing both on and off the marketplace exchanges, so the policy is likely to be similar to a minimum coverage or perhaps a Bronze policy on the Washington marketplace.

The addition of maternity and newborn coverage is not the primary issue in the increased cost of health insurance. When risk is spread more broadly, it costs less for each person who pays for a part of it. In California, all policies in the state have included such coverage since July 1, 2012 because the cost of not having this coverage in policies had become prohibitive. Women without maternity insurance (over 40% of insured California women who became pregnant) had been covered through Medi-Cal (our Medicaid program). Prices for policies have gone up with the coming of the ACA, but not because they include maternity and newborn care.

And What to Do …

The most important thing Ms. Hopkins and her mother can do at this moment is to stop and take a deep breath.

Sometimes great blessings hide in what seem to be awful realities. Mother is not more poor today than she was a week ago. In fact, as of January 1, 2014, she will be $269 per month richer, and she will have a comprehensive medical insurance program with little or no regular out-of-pocket cost. If Mother is unable to bring herself to use her Washington Apple Health coverage, she does not have to do so. But neither will she have to pay for a policy that does not actually protect her.

Will Mother choose to use her new health care options? That is not a question anyone else can answer. She is approaching an age (55-64) at which insurance premiums skyrocket and many Americans have found themselves priced out of the market. At the same time, she has reached the age at which screening tests for deadly diseases begin showing positive results and lives are saved by early interventions. Tests such as mammograms, PAP smears, bone density screening, and colonoscopies are typically ordered for people in their early 50s. These tests are not inexpensive. Prior to the ACA, patients often had to pay for them through their deductibles.

The ACA treats screening exams as preventive care and as such they are not subject to deductibles or copays. Health insurance policies pay for them in full. Medicaid treats them the same way. Mother will not be forced to submit to these exams, but she would be well-advised to get them. They save lives and prevent much suffering for individuals and their families.

What might Mother do with her new-found wealth? If Mother does not have a well-funded retirement portfolio and truly does have enough money to meet her monthly needs, perhaps she and Ms. Hopkins could look at ways to set aside the $269 per month into a savings or retirement plan. Alternatively, if she is not comfortable keeping the money herself, she could donate it to a charity of her choice. However, if she does not have money in a liquid savings account, she should hold on to it and build up her reserves for “rainy days” that might yet come.

When her fortunes turn around and she gets more work, higher paying work, or employer-sponsored health insurance, she can simply report to Washington Apple Health that she no longer needs their health plan. At 138% FPL, she will be able to go to the marketplace and purchase a policy for which she herself pays the premium. Unless her income is greater than 400% of FPL, she will be well advised to accept a bit more help in the form of cost sharing reductions and/or advanced premium tax credits (subsidies). But that’s another issue for another day. Until then, qualifying for Medicaid may turn out to be a huge blessing in disguise.


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Insurers Phase Out Policies Regularly and Could Do So Now

Canceled - MS clip art

Health care insurers phase out policies regularly. A long-standing practice, health insurance companies continuously evaluate the profitability of their products and stop selling them to new customers when they become unprofitable.

What is Normal for a Health Insurance Policy?

New policies often have lower premiums and are very attractive when first placed on the market. Individuals, families, and small businesses flock to the new policy because they like its benefits, and they specifically like its price. As the cost of care rises and people use the new services/benefits they have purchased, premiums are increased to fund the claims that will inevitably be filed.

Entire departments of health insurance companies are devoted to the analysis of risk and tasked with predicting which types of benefits will carry the greatest risk of requiring a pay-out of funds for a claim. If costs rise higher than expected due to increased usage or a spike in the cost of care in general, adjustments must be made.

Eventually, the decision is made to phase out a benefit or the entire policy because it has become too expensive to include. Benefits that have been phased out include maternity care and brand name prescriptions. Often the entire policy is phased out.

How Can a Policy be Phased Out?

Phasing out a policy is quite easy to do. The insurer simply decides that as of a certain date, no new sales of that policy will be allowed. Agents are notified in advance of the final sale date and of new policies that are being added to the portfolio to take its place. Marketing of the new policies begins.

What Happens to Existing Policies?

Existing policies generally remain in force, though they can be cancelled. However, as the risk pool (the group of people covered by the policy) becomes smaller, the premiums rise ever higher. A smaller group of people are contributing to the total sum of money available to pay the claims of an aging population. Eventually, most of these people will decide that the insurance is simply too expensive to keep. They will purchase newer, less expensive coverage. Finally, there will be no more people insured with the original policy.

Could We Do This for Non-ACA-Compliant Policies?

Yes. Many consumers, especially in states that have not moved to implement some of the more expensive benefits of the Affordable Care Act (aka, the ACA or Obamacare) in advance, are finding their premiums jumping by large amounts. They are reasonably unhappy about having to pay so much more. It is theoretically possible to allow non-compliant policies to be phased out the way policies have traditionally been phased out. Simply stop selling new ones with effective dates after December 31, 2013. Within a few years, most of these old policies will be gone, because their cost will continue to rise and their slimmer benefits and higher out-of-pocket costs will make them unattractive in comparison with the compliant policies.

Is There a Downside to Keeping Them?

The downside to keeping these non-compliant policies in force is that the risk pool for the compliant policies will be smaller and is likely to include more people with prior health care conditions. Costs will be higher for the nation as a whole because more of the policies purchased will required subsidies for their funding. Prices of compliant policies will have to increase at a faster rate than would normally occur because the amount of money in reserve funds must be kept high enough to cover claims. Remember, most of the currently uninsured population does not have insurance because the premiums are unaffordable or because a pre-existing condition has led insurers to exclude them from the risk pool (by refusing to sell them a policy at any price).

What Can We Do?

We have a variety of options:

1. Allow current policies to continue indefinitely, with their limited benefits and higher out-of-pocket costs.

2. Allow current policies to continue, but stop new sales of them for effective dates after December 31, 2013.

3. Require insurers to modify current policies to make them compliant with the ACA without any increase in premium.

4. Require insurers to modify current policies to make them compliant with the ACA but allow premium increases to cover the cost of the new benefits.

5. Develop a broader range for subsidy eligibility, especially for older consumers who may still find their new ACA compliant policies unaffordable (with premiums over 8% of their income).

6. Stay the course and require everyone in the individual market (about 5% of Americans) who does not have a grandfathered plan to purchase a compliant policy or face a tax penalty.

Time Will Tell

The decision to be made about how to handle the fall-out and sticker shock accompanying the roll-out of the ACA will not be an easy one.The way we choose to transition to a culture of inclusion in health care and insurance will have an effect on the ultimate success of the process.

Stakeholders in this process include insurers, policyholders, providers, and American taxpayers. As long as private insurance companies are the primary source of insurance coverage for individuals and families, the cost of insurance will not go down significantly. The cost of administration, staffing, sales force compensation, and investor profits must be met (though these cannot cost more than 20% of premiums collected). The cost of billing staff for providers (approximately 40% of practice overhead) will not be reduced. Insurers have to charge premiums that cover their anticipated costs both internally and due to the cost of health care.

At Pozos Insurance Services we’re hoping wise decisions are made in the next few weeks so the benefits of the Affordable Care Act’s reforms will be attained in a way that will be fair and cost effective for all involved.


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Policy Cancelled? Get Enrolled and You Can Have Insurance Coverage January 1

As health insurance cancellation letters arrive in mailboxes across the country, anecdotes are circulating about people who are seriously ill and fear they will not have insurance to pay for their medical care after December 31, 2013. Beneficiaries in states whose health insurance marketplaces have been established by the federal government are particularly concerned because the sales website has not worked properly. However, alternative ways exist to enroll in a new health plan and coverage is guaranteed, as long as the policy is purchased within an Open Enrollment period and the premium is paid on time.

Paper Application

Paper applications have been developed for consumers to use for purchasing health insurance through any of the state or federal marketplaces. Download and fill out the application. Send it to the address listed on the application. You will be contacted with information and instructions on how to complete your enrollment in an insurance plan, including what plans are available to you, what they cover, how much tax credit subsidy might be available to help pay for the insurance, and what your cost will be.

Get a paper application right away if you plan to use this method to apply. It will take around two weeks longer than applying on-line. If you absolutely must have insurance in place by January 1, 2014, now is the time to start the process.

Work with an Agent, an Enrollment Counselor, or a Navigator

Certified insurance agents and enrollment counselors/navigators are trained and ready to help consumers get enrolled in health insurance plans.

Certified insurance agents bring specialized training and experience to the table to assist their clients in selecting the plan that will best serve their needs. Since each insurer that offers plans on the individual and family market must offer identical plans and pricing through the marketplace and outside the marketplace, agents will have up-to-date information even if the website is not working well.

Certified enrollment counselors/navigators have also been trained to assist consumers in the enrollment process. These individuals can help answer questions about the application and the process of enrolling. They do not make recommendations regarding which policy might be better suited for an individual or family’s needs. They refer consumers to Certified Insurance Agents when policy selection recommendations are needed.

Enroll On-line, With or Without Help from an Agent

Marketplace websites are improving in reliability and functionality by the day. The federal site,, includes many tools and resources consumers can use to learn about the policies being offered in their county of residence and how much they will cost. The federal site includes links to each state site as well.

For those shopping before beginning the application process, there is a simple-to-use set of questions and drop-down boxes to develop a list of possible plans and their price. Another link takes consumers to the Kaiser Foundation’s calculator that can be used to estimate eligibility for advanced tax credit payments (subsidies) and cost sharing reductions.

Certified Insurance Agents are ready to help consumers enroll on-line. Contact information can be obtained through the marketplace websites. Designate an agent and that person will contact you to answer your questions and help you get enrolled.

It’s a New Day

Prior to the Affordable Care Act, cancellation letters would indeed have spelled disaster for their recipients. Insurers were allowed in many states to cancel coverage in case of high expenses or to set monetary limits on the benefits each beneficiary could receive for medical care. A person dropped from coverage by an insurer could not normally qualify for a policy from another insurer due to a pre-existing condition.

Today, with the coming of the Affordable Care Act (aka, Obamacare), insurance policies all include the same benefits. All legal residents of the country can shop for insurance and enroll in plans through their state or federal marketplace. Those who have been priced out of the market or excluded due to health conditions can once again have health insurance and access to care. Plans even exist that provide minimal coverage at lower prices for those who don’t qualify for subsidies but cannot afford the plans offered on the marketplaces. (These plans require a waiver before they can be purchased by anyone over age 29.)

Consumers can obtain the protection from catastrophic health care costs, paying their “fair share” of the cost of their insurance, while still being able to afford food, shelter, and the other necessities of daily life. All they need to do is enroll by December 15, 2013 and pay their premium by December 26, 2013. Their insurance will be there ready to be used on January 1, 2014.

For Help in Santa Cruz, California

For help enrolling in Santa Cruz County, please contact Kathleen Brewer de Pozos at 831-713-6438. Kathy is a Covered California Certified Insurance Agent and is happy to answer your questions and help you through the process of selecting and enrolling in a plan to meet your needs.

 Se habla Español.

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Affordable Care Act Enrollment Application Links

Paper applications for Enrollment in health insurance plans sold through state and federal exchanges may be found through these links. In states with federal marketplaces, apply on-line through

State Exchanges

District of Columbia
New Mexico
New York
Rhode Island

Utah: State Marketplace for Small business Health Plan Options (SHOP)
Federal Marketplace for Individual

State/Federal Partnerships

New Hampshire
West Virginia


All other states

No Marketplace for Enrollment *

American Samoa
Northern Mariana Islands
Puerto Rico
Virgin Islands

* Check with territorial government offices for health insurance enrollment options.


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Guaranteed Issue Policies But A Limited Enrollment Period

TermsHealth insurance policies with effective dates of January 1, 2014 or later cannot exclude people from coverage based on having a pre-existing condition. Guaranteed Issue is the term used to describe such policies. However, the fact that current or prior health history cannot be used to exclude a new customer does not mean that people can simply wait until a health condition arises and then get insurance.

Open Enrollment and SEPs

Under the terms of the Affordable Care Act (ACA), health insurance may be purchased only during specific Open Enrollment periods each year. The only exception for purchasing individual or family insurance outside of Open Enrollment is the existence of a Special Enrollment Period (SEP). A SEP occurs when certain major life conditions occur: the birth of a child, marriage, loss of employer-sponsored health insurance, ending of COBRA benefits, a move out of the plan’s service area, etc.

Getting injured or ill and suddenly needing health insurance does not constitute grounds for a SEP!

Confusion about Guaranteed Issue and Open Enrollment periods may lead some to assume that they really do not need to enroll in an insurance plan, especially since the penalty for failure to enroll is so low. Some assume that Open Enrollment period limitations apply only to policies purchased through state or federal marketplaces. These assumptions are incorrect.

Those who fail to purchase insurance during the annual Open Enrollment period will not be able to purchase a policy from any insurer unless they qualify for a SEP. Moreover, despite the low monetary cost of the penalty for failure to enroll, the actual cost can become catastrophic. Seemingly minor injuries — a broken arm or  leg — can result in thousands of dollars in hospital, doctor, and therapy charges. A major illness or injury — cancer, closed-head injury, stroke — can lead to hundreds of thousands of dollars in charges.

Insurance is a contract

An insurance policy is a contract between the person who buys it and the  insurer who offers it. The purchaser agrees to pay a set amount of money on a regular schedule and the insurer agrees to pay a set portion of the cost of a financial loss, including health care expenses.  Both parties must be legally able to enter into a contractual agreement at the time the contract is signed. An unconscious or seriously injured person cannot enter into a contract.

Protection from Adverse Selection

When the ACA was drafted, insurance companies worked with Congress to develop policies that would protect them from the devastating impact of adverse selection. Adverse selection refers to situations in which only those currently experiencing a loss purchase insurance against that loss. Insurance companies cannot provide protection only or primarily against currently occurring losses. They must have a large number of people who all put money together into one pool that can be tapped to pay for the losses experienced by a small number of them. This pool is known as a risk pool. Guaranteed issue policies greatly increase the risk of adverse selection. No insurer can reasonably consent to accepting such risk without some way to minimize it. As a result, the decision was made to control the degree of risk by limiting the time-frame during which insurance contracts can be purchased. Open Enrollment during a brief period each year was the solution, one proven effective by the history of Medicare. In recognition of the fact that things can change dramatically during the course of a year, the Special Enrollment Period option was included.

Bottom line?

Health insurance, whether through state and federal marketplaces or from private insurers, can only be purchased by individuals or families during the annual Open Enrollment Periods. This first year Open Enrollment is from October 1, 2013 to March 31, 2014.

Open Enrollment for individuals to purchase or renew policies effective January 1, 2015 will occur at the same time it does for Medicare: October 15 – December 7, 2014.

Outside of these Open Enrollment periods, it will not be possible to purchase an individual or family policy from any insurer at any price without the existence of a Special Enrollment Period’s special circumstances.


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The Health Insurance Marketplace is Here

Effective October 1, 2014, health insurance marketplaces in each of the 50 states and the District of Columbia are opening for business. These marketplaces, also called exchanges, are one-stop shops through which consumers can purchase health insurance coverage for themselves and their families. Small business owners can go to the state marketplace to get quotes and insurance for themselves and their employees. Low income citizens and legal residents may also apply for Medicaid coverage for themselves and their families under expanded eligibility rules in many states. In California, these plans are all available through Covered California.

The marketplaces are designed to help the approximately 15% of Americans and legal immigrants who currently purchase their own insurance or who have been unable to obtain insurance due to pre-existing conditions or the high cost of the insurance. Policies are now available that offer affordable insurance and the access to healthcare that they provide. Through a program of tax credits for persons with income from 138-400% of the Federal Poverty Level (FPL), premiums will become affordable for millions of people. These tax credits can be used to reduce the monthly cost of the insurance or they can be claimed when filing income tax returns in the next year.

Small business owners who purchase coverage for their employees may also qualify for income tax credits that help reduce their cost of providing insurance for those employees. Prior to the Affordable Care Act, small business owners were at a disadvantage when they looked for employee health insurance because the pool of insureds was too small for them to get the lower rates offered to large groups who brought larger pools of employees to the table. With the Affordable Care Act’s Small Business Health Option Program (SHOP), small employers will be offered more coverage options, rates that reflect a larger pool of insureds, and options to bring the cost of offering insurance under better control. Some will also receive tax advantages for offering insurance. Through this program, it is hoped that more Americans will join the ranks of those whose insurance comes through their employers.

As the roll-out of the Affordable Care Act continues, more information and updates will be available here. At Pozos Insurance Services, we are committed to helping our clients select the best plans that meet their personal and business needs for health insurance. We look forward to hearing from you.

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