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The New Health Insurance Solution: How to Get Cheaper, Better Coverage Without a Traditional Employer Plan

The Complete Book of Insurance

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Health Insurance

Health insurance provides coverage for medical expenses, including doctor’s visits, hospital stays, and prescription drugs. Though the law doesn’t require you to have health insurance, going without it is very risky, since medical costs are extremely high and accidents or illnesses can strike at any time. A health insurance policy can help you maintain good health and receive necessary treatment in the event of poor health.

Types of Health Insurance Coverage

There are two main types of healthcare coverage:

Individual coverage: You are entirely responsible for securing and paying for your own health insurance.
Group coverage: You receive health insurance offered through your full-time or part-time employer, or through another group organization.

There are five factors to consider when deciding whether to choose individual or group coverage:

Price
Acceptance
Benefit level
Ability to renew
Flexibility

Price

Group coverage is generally less expensive than individual coverage, since the company sponsoring the group coverage usually pays all (or a portion) of the cost. Even if the employer doesn’t cover the entire cost, it will deduct the employee’s expense from his or her paycheck on a pre-tax basis, which allows for considerable savings.

Acceptance

With individual coverage, the insurance company can decide to reject you for health insurance based on your personal health profile. For example, if you have a heart condition, the insurance company may decide to exclude coverage of that condition in your policy. Group coverage eliminates this type of scrutiny entirely, since every employee who meets the employer’s qualifications for the plan—such as a minimum number of hours worked per week, or a certain tenure at the company—receives coverage, regardless of medical history.

Benefit Level

Some states have laws that require insurance companies to include certain benefits, such as maternity and mental health expenses, in all group coverage health insurance policies. These laws typically do not apply to individual coverage, however. If you have, or expect to have, a condition (such as mental illness) that insurance companies might exclude, group coverage is likely the best choice for you.

Renewability

Insurance companies that offer group plans have the right to cancel the plan at any time. Employers also reserve the right to revoke health insurance benefits at their sole discretion. Most individual policies include the insurer’s guarantee to renew the policy annually, though often at higher rates, regardless of the policyholder’s current state of health.

Flexibility

Individual coverage gives you much more freedom of choice than group coverage. You can choose to cut certain coverage that may not apply to you—but would raise your deductible—or elect to pay extra for coverage of medical costs that you expect to incur often, such as prescription medication costs or recurring visits to a psychiatrist. Group policies usually give all policyholders the same suite of fixed options, although exceptions apply, particularly when the employee is expected to pay a portion of the premium.

HMOs vs. PPOs

All health insurance plans break down into one of two types: health maintenance organizations (HMOs) and preferred provider organizations (PPOs).

HMO: A type of health insurance that offers broad coverage from a group of health professionals for a flat monthly rate, and usually with no deductible. The insured person is restricted to seeking medical attention only from health care professionals within the HMO network. In addition, any services from specialty health care providers, such as surgeons, psychiatrists, or dermatologists, must be accompanied by a referral from the primary care physician.
PPO: PPOs work like HMOs with one main exception—the insured can seek treatment from doctors outside the PPO network, but usually for an additional fee.

HMO and PPO plans typically require the insured to pay copayments, or copays—small fixed fees for medical services, such as doctor visits and prescriptions. HMO copays tend to be smaller than those of PPOs.

How to Choose Between an HMO or a PPO

An HMO is a good choice if you:

Don’t mind being restricted to providers in the network
Want small deductibles and other out-of-pocket costs
Don’t mind having to obtain referrals from your primary care physician in order to see specialists

A PPO is a good choice if you:

Want to continue seeing your current healthcare providers, even if they’re not in your HMO network
Want a broad selection of generalists and specialists
Don’t want to have to obtain a referral from your primary care physician to see specialists
Don’t mind paying a deductible for health insurance

How to Evaluate Health Care Plans

Use the following criteria to evaluate the health insurance plans you’re considering:

Criteria		A good health insurance plan . . .
Coverage amount		provides coverage up to $1 million, at least. Look for a plan that covers $2–3 million or more.
Out-of-pocket expenses		imposes a set upper limit on the total amount you must pay, whether toward a deductible or a percentage of your medical bills.
Limits on certain expenses		doesn’t stipulate coverage limits for certain types of expenses, such as per-day hospital room stays or specific surgical procedures.
Geographical constraints on coverage		provides the same amount of coverage if you’re traveling outside the country for business or leisure.
Claims filing		files and processes your claims automatically (without your having to submit paperwork) whenever you incur costs covered by your policy.
Dollar amount of coverage per claim		provides a dollar amount per claim (ideally $1 million per claim), not a total lifetime dollar amount.

How Much Health Coverage Do You Need?

The amount of health coverage you need depends on your current health, the health of other dependents you may be covering, and your family’s medical history. It’s impossible to make definitive statements about the amount of coverage you need, but it’s generally best to buy policies that provide at least $1 million of coverage per claim.

Health Insurance Costs

Your health insurance premiums depend on the amount of coverage you choose, your medical history, the contribution that your employer makes to your premiums, and many other factors. As of 2005, the average annual premium for group healthcare insurance per individual in a family of four was roughly $2,700. The average annual premium for individual healthcare insurance was roughly $4,400.

How to Lower Health Insurance Premiums

Here are a few strategies that might help to reduce the amount of your health insurance premiums:

Choose an HMO over a PPO—you’ll have fewer choices for healthcare providers but generally lower costs.
Cut out coverage that may be unnecessary for your particular situation—such as maternity coverage if you don’t plan to have children.
Raise your deductible.
Don’t smoke. If you do, try to quit. (For help, see the Quamut guide to Quitting Smoking, available in Barnes & Noble bookstores and online at www.quamut.com.)

How to Buy Health Insurance

If you choose not to use your employer’s health insurance plan, or if you’re self-employed, you can purchase health insurance directly from an insurance company or through a captive or independent agent. Major U.S. health insurance providers include:

Aetna: www.aetna.com
Blue Cross Blue Shield: www.bcbs.com
Humana: www.humana.com
State Farm: www.statefarm.com
UnitedHealth Group: www.unitedhealthgroup.com

Another popular option is eHealthInsurance (www.ehealthinsurance.com), a website that allows you to compare and buy plans from many of the top providers.

COBRA

The U.S. government’s Consolidated Omnibus Budget Reconciliation Act of 1985, or COBRA, established a health insurance program that ensures that employees continue to receive their employer’s healthcare coverage after they leave their jobs, or after one of several other qualifying events occurs (see below). The employee must pay the plan’s premiums out-of-pocket and can typically continue to receive coverage for up to 18 months after leaving the company. If you’re considering using COBRA, keep the following considerations in mind:

Eligibility
Enrollment deadline
Type of coverage
Cost
Payments

Eligibility

You become eligible for COBRA after a number of different qualifying events, including termination of employment at a company—whether by your own choice or the company’s. For a complete list of COBRA qualifying events, see the U.S. Department of Labor’s COBRA website at www.dol.gov/dol/topic/health-plans/cobra.htm.

Enrollment Deadline

There are very specific rules about the timeframe in which you’re eligible to enroll in COBRA after a qualifying event. Keep in mind that:

Within 30 days of any COBRA qualifying event that you notify your employer about, your employer must provide paperwork to enable you to enroll in COBRA.
You must enroll in COBRA within 60 days of the date of the qualifying event in order to qualify for the program.

Type of Coverage

The coverage you receive under COBRA typically is the same as the coverage you received under your company’s group healthcare insurance plan. Note that:

If the company’s plan changes, the company must notify you. You then have the right to change plans.
If the company adds benefits to its existing plan, the company must notify you. You are entitled to receive those new benefits also.

Cost

The amount you pay for health insurance under COBRA is usually considerably higher than the amount you paid before your COBRA qualifying event. For example, say your health insurance cost $200 per month before your qualifying event. At that time, you likely paid only a portion of the premium out of your paycheck (or paid none at all), while your employer picked up the balance. Under COBRA, you would be responsible for paying the full $200 premium: although your employer must offer you continuing coverage, they’re no longer responsible for paying for any portion of your premium.

Premium Payments

Under COBRA, you pay your employer directly whenever premium payments are due, usually by sending in a check once a month. In most cases, your employer must receive your payment by the first of each month in order to continue your coverage for that month. Late payments can result in the immediate discontinuation of coverage with no recourse, so always be sure to pay on time and in full.

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