Punting my office job for the freedom of freelance copywriting was the best decision I ever made. However, one scary aspect of that leap was leaving behind the health insurance my employer provided.
It turns out, though, that you CAN get good coverage at a reasonable cost. In fact, our family will save over $3,000 per year with our new individual plan.
This week, I’ll talk about the best way to find coverage that’s right for you. Next week, I’ll tell you how you can take advantage of new laws that make your insurance premiums 100% tax-deductible and let you pay for your healthcare with pre-tax dollars.
Begin by preparing for the initial sticker shock . . .
When you participate in a group policy, your health-insurance premiums are usually relatively low. That’s because:
* You share your out-of-pocket expenses with your employer.
* Premium costs are all based on risk. An insurance company spreads the cost of covering your risk of injury over a large — and relatively healthy — group. However, as an individual seeking coverage, you’ll generally face much higher premiums. Nevertheless, you SHOULD bite the bullet and pay for coverage — it’s too risky to go without.
Keep two things in mind: One, it’s typically easier to roll into an individual plan if you are currently enrolled in an existing insurance plan. And two, there is almost no safety net in this country for those who cannot get insurance coverage. Most companies won’t cover “pre-existing conditions,” so trying to get coverage after you get sick is either terribly expensive — or simply not possible.
Some good news . . .
1. As of last year, insurance premiums for the self-employed are 100% tax deductible. That reduces the net amount you pay in monthly premiums. 2. Health Savings Accounts (HSAs) now allow you to use pre-tax dollars to pay for deductibles and other medical-related expenses. (More on HSAs next week.) As you shop for a policy, keep in mind that the health-insurance marketplace is extremely disjointed:
* There is no clear relationship between cost and quality. Simply spending a lot on premiums doesn’t ensure that you’re buying a good policy.
* Costs and coverage options vary widely among plans and insurers. So do not buy the first policy you come upon. Talk to more than one agent (they aren’t objective, remember) to make sure you’re giving yourself some real choices.
* The insurance industry is highly regulated at the state level. Therefore, each state has different rules on the types of coverage that insurance companies must provide. Your insurance needs and available choices will be unique, so do the legwork to find the right fit.
Your total out-of-pocket expenses for health insurance fall into three main categories: the monthly premium, the size of the deductible, and the percentage of co-pay per visit.
Traditional group plans usually have a relatively low deductible and a small co-pay. Your co-pay might be 10% or 20% of the total medical costs, and the insurance company picks up the rest.
While these types of policies are available in individual policies as well, you may find, as I did, that a better choice is a plan with a much higher deductible and a zero co-pay.
Sometimes referred to as “catastrophic” plans, you pay a lower premium in return for the higher deductible. If you’re healthy, this can be a much more economical approach. The zero co-pay also reduces your risk should you be gravely injured or become very ill.
A quick way to get a feel for the types of plans available — and the premiums involved — is to check www.ehealthinsurance.com. After inputting some basic personal information, the site will list multiple policies available from providers who offer insurance in your particular state. Here are some guidelines to consider as you shop around:
1. The “Network”
Most policies today have some type of managed-care plan in which you agree to use doctors within a network in return for lower premiums. Make sure the network you choose has adequate coverage in your area and that your favorite doctor or clinic (if you have one) participates in the plan.
There are two major types of managed-care plans:
* With a preferred provider organization (PPO), your out-of-pocket expenses are lower if you use doctors within the network, but you can still use non-network doctors.
* With a health maintenance organization (HMO), you’re restricted to using only in-network doctors. In recent years, HMOs have fallen out of favor. However, they can offer very economical premiums if you are willing to live within their rules.
Some policies have “exclusions” — procedures and conditions that are not covered. For example, some policies won’t cover mental-health or substance-abuse treatments. Also, some policies will set a cap on the amount of coverage for specific conditions. One company restricted treatment for back pain to $100,000 — a cap you can reach very quickly today.
3. Lifetime Maximum
Most policies have a set maximum amount of coverage they will provide — usually between $1 million and $10 million. Obviously, the more the better. But a good rule of thumb is to eliminate policies with less than a $2 million maximum.
4. Pre-Existing Conditions
Most policies will not cover pre-existing conditions. If they do, they charge exorbitantly high premiums. If you have a serious pre-existing condition, group coverage provided by an employer might end up being the best (or only) way for you to go. When you talk to insurance agents, be up-front about your situation. It’s better to understand the policy first than to risk having your claims denied later.
5. Premium Increases
Most individual policies are “underwritten.” That is, your premium is based on an analysis of your risk of getting sick or injured. Companies consider your age, gender, past medical history, and where you live. If you are in good health, take good care of yourself, and don’t engage in risky activities, you will likely qualify for an excellent rate. However, in some cases repeated or excessive claims can lead companies to “re-underwrite” your policy and increase your premium. When you talk to an agent, be sure to ask about their policy regarding re-underwriting.
6. Dropped Coverage
Once insured, an insurance company cannot drop you if you get sick or make multiple claims. They can, however, drop everyone (if they go out of business or drop individual coverage altogether). Make sure you pick a reputable company with a proven track record and financial stability. A.M. Best (www.ambest.com) rates the financial strength of all insurance companies. I’d avoid any company with a rating of B+ or lower.
Almost no individual policies provide maternity coverage as part of the basic policy. Many have optional maternity riders, but the premiums are very expensive. It may be more cost-effective to skip the premiums and just pay for the delivery directly. Most insurance policies will cover any complications to the mother or baby that may arise during delivery.
8. Drug-Discount Cards
Many policies now provide optional drug-discount cards. The premiums are high and the discounts can be as low as 15%. Unless you have a great need for prescription drugs, the discount simply won’t make up for the cost of the premiums.
Next week, I will tell you about the new Health Savings Accounts created by Congress. When paired with an individual health-insurance plan, these can provide significant savings.
(Ed. Note: Pat Stevens is a freelance writer and consultant and an AWAI copywriting course graduate. He has 12 years of business experience as a corporate finance and marketing executive and holds a Masters Degree in Finance from Johns Hopkins and a Masters in Public Policy from the University of Chicago. Pat recently moved (with his wife Jen) to Colorado (“where we always wanted to live”), where they work from home and take care of their 3-year-old and 5-month-old boys.)