ONE OF THE hardest things about leaving a job is walking away from the benefits package. Once you're out on your own whether you're starting your own business, working for a small employer that offers no coverage or suddenly find yourself among the ranks of the unemployed the reality is the same: You must cough up a lot of dough for what will feel like inferior health coverage.
Before you start your search, brace yourself. The private health-insurance market isn't pretty. "It's a difficult, difficult road to go down," says Kathleen Stoll, Director of Health Policy for consumer-advocacy group Families USA.
Here's what you have to look forward to: steep monthly premiums, higher copayments, outrageous deductibles and fewer benefits. Moreover, the process can be tedious and downright confusing which helps explain why there are some 50 million Americans under age 65 who went at least six months without coverage during 2006, according to the 2006 Medical Expenditure Panel Survey.
The key, of course, is to shop around and make an informed decision that you and your pocketbook can live with. This will take some time. Experts recommend you give yourself at least 60 days to examine your options and apply for a policy. There's a lot more to it than when your former employer asked you to check a box electing a managed-care plan or a preferred provider organization.
Here's how to navigate the private health-insurance industry.
How it Works
If you thought buying life insurance was tough, just wait until you shop around for health coverage. Unlike an employer-sponsored plan that has to accept everyone at the same price, private plans in most states are underwritten based on your age, weight, smoking status and health history. In some cases, applicants will even have to undergo a medical exam. A preexisting condition as common as asthma could be enough for an insurer to hike your premiums, while a history of anxiety or depression might cause an underwriter to think twice. And if you have a history of heart disease, cancer or diabetes, you could be out of luck entirely. A plan could either be too expensive or include a rider that excludes the very ailment for which you need coverage. "If they look at your application and see something they don't like, a $600 [a month] policy could go to $850," says Robert Bland, chief executive of online insurance broker Insure.com.
You should also know that health insurance is regulated at the state level. In places like New York, New Jersey and Vermont, insurers must offer coverage to every applicant, regardless of age or health status. This egalitarian approach sounds great until you see the premiums. Even young healthy men, who are the cheapest to insure, could be charged as much as $1,000 a month, says Bland. In other states, such as California and Florida, there are fewer restrictions on the insurers, and premiums tend to be more reasonable for young people and pricier for older folks. The problem in these regions is that insurers can outright refuse to provide coverage. In such cases, consumers can buy pricy policies from a state high-risk pool. But it won't come cheap, and it could exclude pre-existing conditions. For more information on the rules for your area, contact your state insurance commission's Web site.
How to Buy It
If you have the option to sign up for COBRA (a federal law that requires certain employers to provide former employees with the option to purchase health insurance), do it. In nearly all circumstances, it's smarter to keep your former employer's health plan for the full 18 months. Yes, paying the entire premium out of your pocket may be steep, but it's usually cheaper than buying it on your own.
Before you exhaust your COBRA, start shopping around for your next plan. The quickest way to get a handle on your options is to look for policies on Web sites such as Insure.com or eHealthInsurance.comContact the National Association of Health Underwriters Just make sure you find someone who represents a lot of companies and understands the underwriting standards for each insurer. The last thing you want is to be rejected from a plan that doesn't typically cover someone with your health profile. Not only is it a waste of time, but it could also raise a red flag when you apply to other insurers. An informed broker could steer you away from such insurers.
And since group coverage tends to be cheaper, don't forget to check with your professional trade association for coverage. The Writers Guild and the Actors' Equity Association are two examples of groups that offer their members health insurance. (In most states, however, people in their 20s and 30s may find cheaper coverage through an individual plan.) And for those starting a business: Most states allow as few as two employees to buy a small group policy.
According to the Kaiser Family Foundation, a Menlo Park, Calif.-based nonprofit focused on health-care policy, the average employee paid $58 a month for health insurance in 2007. Employers picked up the rest a $3,785 tab. How much can an individual expect to pay? America's Health Insurance Plans says the average individual annual premiums from 2006 to 2007 cost $2,613, or $218 a month. While individual plans may appear cheaper, individuals have to pay the entire premium on their own. And as we mentioned earlier, those in restricted states, and older individuals with health issues, can expect to pay a lot more. "It's not uncommon to hear of people paying $10,000 to $12,000 a year," says Families USA's Stoll.
One way to keep premiums manageable is to increase your deductible (don't go beyond what you can afford to pay out each year) and skip the vision and dental coverage. Don't even try to match your former employer's lush plan. Blue Cross Blue Shield of Illinois, for example, charges a young family of four living in suburban Chicago $636 a month in premiums and a $250 deductible. If they accept a deductible of $1,750, they can lower the premium to $415 a month. "Insurance should be purchased to cover sudden accidental and unintended losses," says Insure.com's Bland. "With low-deductible plans and maintenance policies, you are trading dollar for dollar with the insurance company over the long run."
While there are some benefits you can live without, others are important. A maternity rider is one of them, advises Ellen Corwin, an individual health-insurance broker from West Des Moines, Iowa. "I advise all of my female clients to get one," she says. Unlike employer-sponsored plans, which usually cover birthing expenses, private plans don't unless you pay for it upfront. Even if you decide to start a family in a few years, it may be too late to add the coverage. Blue Cross Blue Shield of Tennessee, for example, won't let a woman add the benefit after she initially purchases a policy unless she submits an official "notification of change in status" and gets married.
Before you make your final decision, read the fine print. Make sure you're buying comprehensive coverage that will cover you should you suddenly fall ill and rack up thousands in hospitals bills. Insurers have been known to attract customers with low teaser rates that can change after only a few months. It may cost a little more, but you should look for one that will guarantee your premiums won't rise for 12 months. And most important, go with a reputable firm. Check its claims-paying ability rating with an agency like Standard & Poor's or Moody's.
Buying health insurance may not top your list of fun things to do, but that doesn't mean it's unimportant. After all, there are few things in life more valuable than good health.