Are you thinking about starting a new career? If so be sure that you know that health benefits are included. Have you ever thought of starting your own company? Think again, the average costs for family healthcare in the United States is $12,000 per year. Can you afford that? Are your
health insurance costs to high?
For Americans not eligible for
Medicare, the prospect of getting health insurance can be daunting. It requires navigating a hodgepodge of federal and state laws. Ignoring health insurance can be catastrophic if you wind up in the hospital without coverage.
So what are the options for the self-employed?
"The key is to plan ahead," says David Guilmette, managing director of Towers Perrin's Health and Welfare practice.
The health of you and your dependents, where you live, who you know and what you can afford to pay are among the factors you need to consider when weighing your options, he says.
"Nine times out of 10, if you can get access to employer-sponsored group coverage, take the employer-sponsored policy," says Karen Politz, a research professor at the Georgetown University Health Policy Institute. "Dollar-for-dollar, you get a lot more protection."
Under federal law, you can't be denied coverage on medical grounds in an employer-sponsored health plan. By contrast, in the majority of states, insurers offering individual policies can permanently exclude pre-existing conditions, such as high cholesterol, or deny you coverage for chronic illnesses, such as diabetes. The states where you can't be denied coverage are New York, New Jersey, Massachusetts, Maine and Vermont.
Employer-sponsored group policies are also likely to provide certain benefits, such as maternity care, that individual plans typically don't. A normal pregnancy and delivery can cost $8,000 to $12,000.
If your spouse has access to health-care benefits through his or her employer, getting coverage under that plan is the most cost-effective strategy, according to Ms. Politz.
According to a recent survey by the Kaiser Family Foundation and the Health Research and Educational Trust, an employee's average monthly contribution in an employer-sponsored health plan for family coverage is about $273 and $58 for an individual.
In addition, a growing number of employers are extending health-care benefits to domestic partners. About 47% of the 60% of employers who offer health benefits to employees offer them to opposite-sex domestic partners; 37% to same-sex domestic partners.
Be mindful of deadlines. If you quit your job, your spouse generally has 30 days to notify his or her employer that you want to enroll. Also, employers may limit when domestic partners can sign up, and there can be tax implications, so it's important to check, experts say.
If the first option isn't available, and you currently receive health-care benefits through your employer, you can extend that coverage after you quit. Under the federal Consolidated Omnibus Budget Reconciliation Act, or Cobra, you can purchase coverage for as long as 18 months after you leave or lose your job, providing that you weren't fired for misconduct. For the law to apply, the company must have 20 or more employees.
According to Tom Billet, a senior consultant with Watson Wyatt Worldwide, the main advantage of Cobra is that you will continue to receive the same health benefits as you did under your employer's plan. If you're receiving treatment and it was covered under the plan, this is important. If you join another group plan, temporary exclusions for pre-existing conditions can be imposed.
However, Cobra is much more expensive than job-based coverage because you have to pay the entire premium. Based on figures in the Kaiser Family Foundation study, that would equate to $1,009 a month for family coverage and $373 a month for an individual. You also pay a 2% administration fee.
"Most people have no idea how much health insurance costs," says Vince Ashton, executive director of HealthPass, a nonprofit agency created by the New York Business Group on Health, the City of New York and the health-insurance industry to improve access to coverage for businesses with two to 50 employees.
Typically, your employer has 30 days to notify you of your Cobra rights, and you have a further 60 days to make your decision. Premiums vary greatly from employer to employer, so find how much your plan costs.
About 40% of employers don't offer benefits. If you don't have access to an employer-sponsored plan, you may be able to get coverage through professional associations, trade or affinity groups. However, such coverage isn't as common as it used to be, and associations can deny coverage on health grounds.
Organizations in which health insurance is an incidental benefit rather than its reason for being, and which have strict entry requirements such as requiring a certified public accountant designation, tend to offer the better plans, according to Michael Crifasi, a certified financial planner with CEI Financial Planning, Inc, in Atlanta, who is also an independent insurance agent. It's important to find a well-established plan with a history of reasonable annual renewal rate increases, he adds.
Experts also advise calling your state insurance department to find out if the insurer that underwrites the association's plan is licensed in the state where you live and if your state insurance regulator is authorized to intervene if you have any problems with coverage.
In about a dozen states, a self-employed person can buy health insurance in the small group market. For instance, in Connecticut and Delaware, you are considered a small business even if you are a sole proprietor with no employees. While you can't be denied coverage, many states apply rating bands based on health or adjusted for your age. The exception is Vermont, which requires insurers to charge everyone the same premiums. Most states do set limits on how much insurers can charge. Hawaii doesn't impose any restrictions, so premiums there can be very high. Be aware that some states, like Florida and New Hampshire, have limited annual enrollment windows. See http://www.statehealthfacts.org for information about your state.
If you are healthy, purchasing an individual policy, such as a high-deductible health plan, and opening a tax-free health savings account, or HSA, could be the best option. A Humana PPO policy in Florida with a $5,200 deductible will cost a healthy 54-year-old woman $168 a month. In 2007, she could put as much as $2,850 in a HSA.
"Savings not needed to pay for the deductible and other out-of-pocket medical expenses can accumulate in HSAs for years," especially if you are young and open an account, says Carolyn McClanahan, founder of Life Planning Partners, a financial-planning company in
Jacksonville, Fla.
Start your research a year before you plan to leave your job and enlist the help of an independent insurance agent. See your state insurance department's Web site for listings.
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June 1, 2008
