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Tony Novak, CPA, MBA, MT
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Know your health coverage options
by Tony Novak, CPA, MBA, MT
, revised 11/30/2011
As the monthly cost of some health insurance approaches levels that may exceed the amount of a typical homeowner’s mortgage payment, knowing all of your options can be a crucial issue for financial survival. At the opposite end of the scale, many are wondering about the growing number of new health insurance plans that offer coverage for less than $100 a month. Most Americans continue to be covered through employer-provided group coverage, but even this is changing as the mix of available coverage, non-insurance options and lower cost alternatives evolves.
Consumer driven choices
More than half of Americans are currently covered by employer-provided group health insurance. It is important to understand that health coverage is provided at the discretion of the employer. There is no requirement that an employer provide health benefits and an employer can cancel that coverage at any time. With a few exceptions discussed below, there is no inherent right to continue coverage in the event that an employer decides to cancel your coverage.
Beginning in 2014 the federal health reform law provides motive for smaller companies will shift coverage to individual insurance exchanges where employees choose their own coverage. Some small companies have already moved to this strategy through the use of a Cafeteria type benefit plan. See Freedombenefits.org for more information on this options.
Group health insurance
Group health insurance is the most comprehensive type of health insurance. It is also the most expensive type of coverage due to the number of required add-ons known as “mandated coverage”. Employers typically share the cost of this insurance with employees. The percentage of Americans covered by group health has been declining each year.
Most health insurance companies offer covered individuals the option to convert from group health insurance to individual insurance without submitting a new application for coverage. This is known as an “individual conversion”. Since this is offered as a courtesy and not as a requirement, it makes sense to call the insurance company to ask if they offer an “individual conversion” whenever their is a possibility of losing group health insurance.
Consumer-Driven Health Plans
The concept behind consumer-driven health plans is that employees can get better value by making their own purchase decisions with health care dollars than the employer can make on a blanket basis for all employees. This process involves trading off coverage of one type of less needed coverage for another more highly valued benefit. For example, one young employee may have minimal medical care needs, but puts thousands of dollars toward orthodontic treatment. Another employee may have a lifelong need for diabetic supplies and may be willing to forgo dental coverage completely. The employer’s cost remains fixed regardless of the options selected by the employees.
The more an employee knows about available health care options, the more benefit will be available through a consumer-driven health plan. A few employers offer access to a knowledgeable benefits adviser, bit most employees must research health care options on their own. An employee directly benefits by finding the best value in the market and most of these plans allow the employee to enroll in any type of insurance or non-insurance benefit.
If you work for an employer with more than 25 employees and your insurance is cancelled because of a “qualifying reason” (like being laid off) then you have the option of continuing to pay the full cost of the coverage for up to 18 months. Either the employer or the insurance company is required to notify an eligible person of their rights to apply for this coverage. The problem with this system as it operates today is that by the time the insurer notifies you of this right to continue coverage, the bill for 2 or 3 months coverage is due and you must immediately write a check for thousands of dollars. This is an especially serious problem after your paycheck is gone! This is the only option if you have a serious and expensive ongoing medical condition. If not, there are better alternatives available at a fraction of the price.
Healthy people who are making a career change or need to change insurance can get high quality coverage for one month up to many years at a fraction of the cost of COBRA coverage by applying for “short term medical insurance”. This may be the best value available in health insurance today. These policies are available in every state except NJ, NY, MA, and VT and are primarily issued online at sites like Freedom Benefits. This in “regular” major medical insurance except for the limitation on the length of the policy. When a policy expires, you must go back online to apply for another policy.
The wide array of individual health insurance policies available today allow customized coverage at almost any level of benefits. The factor that most directly reflects the price of coverage is the policy deductible. Policy deductibles range from $500 to $25,000 that represent the amount of risk retained by the covered person.
Individual policies are usually renewable and cannot be canceled by an employer.
Policies that limit the dollar amount that will be paid have become increasingly popular primarily because they are priced at a level that almost anyone can afford. For example, the policy
Like individual policies, these can be renewed year after year until a person reaches age 65.
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