COBRA Too Costly? Take a Look at Individual Plans
- Tip Sheet – Three Important Questions
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Answer these questions before looking around and buying an individual plan:
How long do you expect to go without insurance? Not having insurance for a few months is very different from not having it for a few years.
How much coverage do you need? A young man looking for his first job and a mother of two who owns her own business will make very different choices.
How much do you want to pay? A lower premium (the amount you pay each month) might seem to be the best way to save a few bucks. Just be sure to find out how much more you will have to pay if something happens to you.
The dire economy has people worried. People are losing their jobs -- and their health coverage. Most U.S. workers receive health benefits through their employers, so they associate health insurance as something that comes with a job.
As unemployment rises, more people must find a way to pay for health insurance on their own.
A recent Aetna survey found that people are confused about their options, including the cost of COBRA. The survey also found that consumers have a low awareness and understanding of another important option – individual health insurance plans.
Confusion over COBRA Cost
COBRA is the Consolidated Omnibus Budget Reconciliation Act of 1985. It can cover you for up to 36 months after losing a job. That can bring peace of mind while hunting for work.
What's not so peaceful is the cost. Thirty-eight percent of those in the Aetna survey thought they would pay the same for COBRA as when they were employed. Wrong. Without the employer helping to pay the bill, you have to pay 102 percent of the total premium. This can end up costing double or more to keep the same coverage.
No wonder the Commonwealth Fund – a consumer health organization - found that only 9 percent of unemployed workers have COBRA. Families USA, another consumer health organization, says the average national premium to cover a family with COBRA eats up almost 84 percent of unemployment benefits. This high expense makes it nearly impossible for most families to use COBRA coverage.
Recent COBRA Changes
As part of the national economic stimulus package, people who were laid off (or may lose their jobs in the near future) and who select COBRA coverage will receive help paying for it. With the rising unemployment rate, these changes are a positive temporary solution and will make COBRA coverage more affordable for eligible consumers. There are several important details to know about the recent changes to COBRA coverage:
- People who were laid off (or lose their jobs) between September 1, 2008 and December 31, 2009 are eligible for a subsidy to help them pay for COBRA coverage.
- These individuals will receive a 65 percent subsidy. This means they will have to pay 35 percent of the usual cost of COBRA.
- This option is available for a maximum of nine months. After that, consumers still receiving COBRA coverage will go back to paying the full premium.
- In most cases, the earliest effective date for the subsidy is March 1, 2009.
- Employers are in the process of notifying eligible individuals about this subsidy. Once a person is notified that they are eligible for this subsidy, they have 60 days to select COBRA coverage.
- Individuals who were laid off before the stimulus package was passed will have a 60-day “special election period” where they will have another opportunity to select COBRA coverage.
Click here to learn more about these recent COBRA changes.
The Basics of Individual Health Insurance
Because most people receive health insurance through their job, they are not familiar with individual insurance plans. The same Aetna survey found that 69 percent of people had never heard of individual health insurance plans or did not know much about them.
Here is what you need to know to get started.
- Types of plans – When you get your health benefits through your job, you typically get to choose from just a few plans your employer offers. You have many more choices when picking an individual plan.
Common types of plans include:
- Preferred Provider Organization (PPO)-style plans cover you in a way that is similar to what you are used to receiving through an employer.
- Health Savings Account (HSA)-Compatible Plans let you pay for certain medical expenses with tax-advantaged funds.
- Preventive and Hospital Plans cover preventive care and inpatient hospital care. The preventive care can include an annual gynecologic exam, well-child care and a physical exam. These lower-cost options can protect you from the huge costs of a major accident or illness.
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Cost – What you pay is based on the type of plan you want, your age, where you live and your health.
Some plans for children and young adults can start as low as $40 a month and there are quite a few that can be found for under $100 a month. Plan prices go up as you get older and are likely to have more health conditions. -
Comparing plans – Think about what you need. Want your prescription drugs covered? Low premiums? If you want to keep your doctor, make sure he or she is in the insurer’s network.
The Health Benefits Priorities Tool can help you find the plan that best fits your needs. Select the most important features for you to see what type of plan might work best. - Learn more – Almost all insurers have websites. You can research plans, get quotes and even apply online. Websites like eHealthInsurance.com let you compare plans where you live. You can also contact a local broker who can help answer any questions you might have when comparing plans.
Medical Underwriting
You will need to answer some health questions to get individual insurance. This process is called "medical underwriting."
Your health can influence if you can get a plan and can also affect the cost. This is the main difference between individual plans and the kind you get from an employer.
You are automatically covered if you have a job that provides health insurance. You and your co-workers will also pay the same amount for the same plans. This is because your employer gets a "group rate" – the cost of the plans that all employees will have to pay.
There is no "group rate" with individual plans. The insurer bases the cost of your plan on your age, where you live and your health (your family's information is considered also if they are on the plan). Your health also determines whether you can get a plan.
This means that you pay less if you are healthy. You could compare this to what takes place when you buy car insurance. If you have trouble staying below the speed limit and avoiding fender-benders, you will pay a higher rate. If you don’t have any tickets and have never been in an accident, you will pay a lower rate.
This also means that you could pay more or be denied coverage based on your current or past health. In many cases, this will not be an issue. A study in 2007 found that about 89 percent of those who apply for individual health insurance, and undergo medical underwriting, were eligible for plans.
What If You are Denied?
You may be able to get insurance through a club or association you belong to, through COBRA or through free or low-cost health insurance programs in your state.
Click here to read more.
Many states offer "high-risk pools" or have “insurers of last resort” for those who can't find insurance. Contact your state's Insurance Department for more information on these options.
