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Your child's
graduation is over, you've folded away the cap and gown, and now you
have a chance to mull over the big changes taking place for your
daughter or son. Here's one to include: The kid's probably just lost
or will soon lose health-insurance coverage as a dependent.
Getting new insurance for a young, healthy person can be
challenging. But the real pain in the neck is finding affordable
coverage when you're older (with preexisting conditions) and lose
your job or go through a divorce after not working for many years.
Health insurance is still largely tied to employment, either yours
or your spouse's. When circumstances change, there goes the health
plan.
Allowing a gap in
coverage at any age is like playing Russian roulette, with results
that can be financially devastating. A recent study found that more
than a quarter of the 1,771 people surveyed who filed for personal
bankruptcy cited illness or injury as the cause. A typical scenario:
An employed person gets sick, can't work any longer, loses his
insurance, and can't afford new or continued coverage.
Preparing for such a stormy day may not be on your radar screen yet,
but it should be. Here's how to plan for a possible gap in coverage
and how you might be able to close it.
1. Understand the threats
Many are the ways you can lose your health insurance besides getting
fired, laid off, or downsized. Among them:
Early retirement. If you pack it in at age 65 or older, then
you qualify for Medicare, the government's insurance program for the
elderly and disabled. If you're younger, you need to find out
whether your employer is among the 33 percent of large companies
(those with 200 or more workers) or 7 percent of small companies
that will continue coverage for you, and any dependents, in
retirement.
Death of a working spouse. Most employers must offer coverage
to the survivor under the Consolidated Omnibus Budget Reconciliation
Act of 1986, or COBRA, which lasts as long as 36 months. Otherwise,
you have to buy your own.
Divorce. The spouse left without insurance can also qualify
for it under COBRA for up to 36 months. Just ask for enough in the
divorce settlement to cover your premiums.
Aging out of a parent's plan. Coverage for a child usually
ends at 19, or when he is no longer a full-time student. Typically,
plans require that he be enrolled for at least 12 credit hours.
2. What you can count on
Before you consider buying insurance on your own, you should check
out what the law provides.
COBRA. The act allows you to continue temporary coverage at
group rates through your employer's plan if you lose your job,
generally up to 18 months for you and eligible dependents. But you
have to pay the full premium yourself, up to 102 percent of the cost
of the plan. On average, that comes to $600 or $700 a month for an
individual and $1,400 for a family.
"If the company goes out of business, however, there's no COBRA,"
says Maura Carley, founder and president of Healthcare Navigation in
Fairfield, Conn. For example, if the husband operates a business
that closes at his death, his widow won't qualify to enroll in COBRA
through his old plan. Similarly, if a large company files for
bankruptcy and ultimately liquidates, its health plan is no longer
in effect, and there's no COBRA.
HIPAA. If your coverage changes from one employer to the
next, the Health Insurance Portability and Accountability Act of
1996 protects you from being denied coverage by a new employer for
preexisting conditions, or it sets a time limit beyond which those
conditions cannot be excluded. HIPAA will not help you, however, if
your gap in coverage exceeds 63 days.
State-guaranteed health insurance. In most states you can now
get coverage in a high-risk pool if you are sick and no private
insurer will accept you for individual coverage. Eligibility
requirements vary by state. Call your state department of insurance
to find whether the pool is still open and if you are eligible.
Medicaid. If you are in serious trouble, you can turn to this
state-federal program. Medicaid provides coverage for people with
few assets and low income based on federal poverty guidelines. Some
states waive the income guidelines for those who are "medically
needy." To enroll in Medicaid, you must apply to your state
department of social services.
3. Buy your own policy
Surprise! You can find affordable health insurance on your own.
Compared with employer-sponsored coverage, "individual policies that
you purchase yourself are half the price or less for the same
coverage--if you're healthy," says Paul Zane Pilzer, an economist
and author of "The New Health Insurance Solution: How to Get
Cheaper, Better Coverage Without a Traditional Employer Plan"
(Wiley, 2005).
Pilzer recommends buying your own policy while you're healthy, even
if you have the option of an employer plan. That way, you would
still have coverage if you were to lose your job. His research shows
that the average monthly premium nationwide this year is $173 for a
single healthy male age 35 and $541 for a family of four
(35-year-old parents, two kids ages 5 and 8). That compares with
monthly premiums of $375 for an individual and $1,166 for a family
enrolled in an equivalent employer plan.
4. Only for the healthiest
Of course, if you have a preexisting medical condition such as
cancer, heart disease, or diabetes, you will likely be denied if you
seek private individual coverage. Or the insurer will specifically
exclude certain treatments or charge you a higher rate than the
prevailing one for a healthy person your age. "Uprating" to a higher
premium is becoming more common than exclusions.
However, there's a greater risk than uprating. The insurer could
close the pool to new applicants, says Gary Claxton, a vice
president of the Kaiser Family Foundation and director of its Health
Care Marketplace Project in Washington, D.C. Without new healthy
people coming in, the pool gradually covers a less healthy
population, causing premiums to rise. As they rise, healthy people
leave the plan to buy cheaper insurance elsewhere. Meanwhile, those
with serious ailments are unable to find other coverage and are
stuck paying ever-spiraling premiums.
5. Take time to shop carefully
Finding new health coverage if you don't have an employer plan is a
ton of work. You might want to start by checking out policies
offered on ehealthinsurance.com or by asking friends about their
coverage. You can also hire a licensed health-insurance broker to
find a policy for you. To locate an agent, go to the Web site of the
National Association of Health Underwriters (www.nahu.org).
Most members are independent agents representing several plans.
Organize your questions so that you can compare insurance plans
side-by-side. Among points to consider: premium cost, deductibles,
co-pays and how they differ for out-of-network providers, which
medical services are covered and which are specifically excluded,
and limits on annual or lifetime visits to mental-health
professionals and other specialists. You can lose coverage if you
lie on the application or do not pay premiums, or if the insurer
decides to no longer operate in your state.
This article was also
published in
Consumer Reports
Money Adviser.
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