Tips for Buying Individual Health Coverage

There's strength in numbers, particularly when you're buying health insurance. As part of a group plan, you can enjoy a significant discount on premiums and comprehensive policies. Whatever your health status, and regardless of your past illnesses, you'll be protected.
But if you leave that job — or start another one that doesn't offer health insurance you may be surprised at just how expensive the same coverage is when you buy individual health insurance. ("Individual" means the insurance is not connected to a business or to the self-employed. You can purchase an "individual" policy that covers your whole family.)

In addition, there are no guarantees that an insurer will take you on. That's because unlike group plans, individual plans are medically underwritten and can decline your business or attach exclusions to your policy. They take into account your past and present health and then factor it into your premium as they see fit.

"The economics are different in the individual market," says Thomas Wildsmith, a policy-research actuary with the Health Insurance Association of America. "Unlike group plans, people in individual plans pay premiums that are more in line with their expected health costs. So the cost will be higher for those who are older or less healthy."

Crunching the Numbers
Pricing is probably the most bewildering aspect of the individual health insurance market, so it's worth your while to shop around. For instance, the premiums for similar products from different insurers can vary by as much as 50 percent for the same person, explains Mark Gurda, president of Castle Group Health in Northbrook, Ill. What's more, the rules and regulations about individual health insurance vary from state to state, making comparison-shopping a bear for the uncertain consumer.

If you're faced with finding individual insurance, don't let the confusion tempt you to go without. "It's never a good idea to be without protection," cautions David Sterling, president of Sterling & Sterling, an insurance brokerage in Great Neck, N.Y. "When people think about going a few months without coverage, they tend not to consider accidents. As healthy as you are and you feel, you could fall off a ladder or slip in the street. Medical expenses for the unexpected can be quite costly." Plus, you'll lose your preexisting-conditions coverage in most states if you go without insurance for 60 days, he warns.

Finding the right balance of coverage and cost can be challenging, but it's a necessity. So take your search one step at a time. The first step is to evaluate your needs and understand your health-insurance options. For some, that may mean buying COBRA coverage.

Consider COBRA
When you leave a job, you don't necessarily need to leave your health insurance behind. Thanks to COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985), employers who provide a group health insurance plan must offer most employees who would lose their coverage the option to continue it for up to 18 months. The catch is that the employee will have to pay the full premium, up to 102 percent of the employer's cost (the extra two percent is an administrative allowance).

COBRA is probably best seen as a safety net. "There's a secret to getting the most out of COBRA," Wildsmith advises. "You have 60 days to make a decision about COBRA, and when you do, the coverage is retroactive. So as soon as you know you will be losing your group coverage, start shopping for individual coverage. Since you may not qualify for individual coverage, it behooves you to go out and talk to independent agents who represent different companies. If you find a policy you like, apply for it; you should be able to find out if you are accepted within those 60 days. If you find a better priced policy that meets your needs, buy. If not, go with COBRA."

Wildsmith points out that COBRA covers all members of your family. "For instance, if you find an individual policy that works for you but won't cover your wife's preexisting illness, go with COBRA only for her. You can tailor it somewhat to meet your needs." (See more at "Know Your COBRA Rights.")

A preexisting condition might make finding individual health coverage more complicated or more pricey but that shouldn't knock you out of the race completely. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) restricts the ability of insurers to exclude preexisting medical conditions from coverage, and to issue or renew coverage if you were previously part of a group plan. HIPAA kicks in after you exhaust any COBRA coverage, says Wildsmith.

This may ring as warm and fuzzy, but make no mistake about it: There's a bottom line here. "The access to HIPAA is guaranteed; however, the premium may be 25 percent higher than the standard rate for a healthy individual [buying coverage] in the private market." That's a conservative estimate: A recent U.S. General Accounting Office study found that premiums for individuals eligible under HIPAA can run as high as 140 percent to up to 600 percent above standard rates.

Navigating the Individual-Health Marketplace
COBRA aside, the individual-health insurance market is a wild frontier. The landscape varies from state to state and the rules are constantly evolving. That's why it's imperative to comparison shop. An independent agent well-versed in individual health policies can help you sort through your varied options and find the policy that's right for you and your family.

Among your choices, you'll find that the individual-health market offers the same plans as the group market, including health maintenance organizations (HMOs), preferred provider organizations (PPOs), point-of-service plans, and traditional fee-for-service arrangements. Your budget, physician preferences, and health requirements will all have a hand in deciding which type of plan is best for you.

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