Maybe you’ve finally taken the plunge and started your own business. Maybe you’ve changed jobs, and your new employer doesn’t offer health insurance coverage. Whatever your situation, you suddenly find yourself shopping for an individual health insurance policy to replace your group coverage. This process is all new for you. What can you expect?
First and foremost, expect “sticker stock” at the price comparison. Your previous employer may have deducted your health insurance premiums from your paycheck, so you hardly felt the pain of the price of your insurance. That will all change when you start comparing individual prices. While costs vary widely from company to company, as well as state to state, expect a sharp increase in price from a group plan to an individual. Doubling, tripling or even quadrupling your premium is not unheard of, in fact, it’s pretty common.
A bigger concern is that there is no guarantee that you can find a new insurance company willing to take you on. Under group policies, there is generally little or no medical underwriting, and insurance companies must either issue coverage for the whole group, or decline to cover the whole group; they can’t “cherry pick” the individuals within the group they don’t want to cover. Under an individual plan, however, much stricter underwriting guidelines are followed, and insurance companies are free to decline coverage for you or your family if they feel the risk is too great. Translation: if you or a family member has health problems, even something fairly common such as high blood pressure or diabetes, you can expect to be declined for individual coverage, or pay an excessively high premium.
There are a couple of pieces of legislation that will help, at least for a time. The first is COBRA (Consolidate Omnibus Budget Reconciliation Act of 1985), which is a long name for the law that says if you’ve been covered by group health insurance with a particular employer, and you leave that employment, thereby losing your coverage, you have the right to convert that coverage to an individual plan for up to 18 months. The big drawback here is that you now have to pay the full premium, up to 102 percent of your previous employer’s cost.
The other piece of legislation that you need to be aware of is HIPAA (Health Insurance Portability Act of 1996), which imposes limits on insurance companies who seek to decline or restrict your coverage due to pre-existing conditions, such as those pesky health problems like high blood pressure or diabetes that we talked about before. The problem with HIPAA is that it only helps if you’re going from one group insurance plan to another group plan: it doesn’t apply if you’re changing from a group plan to an individual plan. If you’re leaving an employer and becoming self-employed, you may want to consider applying for a group plan under your new company.
Assuming that you’ve found an insurance company that is reasonably priced, and willing to issue a policy to you, there are a few ways you can save money. As you’re comparison shopping, keep in mind there are different plans, with different levels of coverage. Your choices should include: HMO’s (Health Maintenance Organizations), PPO’s (Preferred Provider Organizations), POS (Point of Service plans), and traditional fee-for-service plans.
If you’re more concerned about out of pocket expenses and want “full coverage” an HMO might be your best choice. You generally will pay less up-front costs for doctor visits, lab tests, prescription drugs and the like, but your premiums will be higher.
A PPO is designed more for catastrophic-type coverage, with higher co-payments and deductibles, but if you’re not as concerned about out-of-pocket expenses, the premiums on a PPO should be lower. And remember, you can always take a higher deductible and co-payment option, which will also have the effect of lowering your insurance costs.
Compare costs and plan options carefully. As soon as you know you’re going to be changing jobs or going out on your own, start shopping for new health insurance coverage. A little pre-planning can make a big difference, not only in cost, but in coverages.