Teetering on the edge of insurance

Ever wonder what you'd do if you no longer had health insurance? Money Magazine's Carolyn Bigda has some options to consider.

By Carolyn Bigda, Money Magazine writer-reporter

(Money Magazine) -- Small business owners Gordon and Babette Brennan used to pay as much as $800 a month for health insurance. But the Jupiter, Fla. couple felt like they received little in return: Claims for ordinary pediatrician visits for their son Ryan were denied. Procedures like blood tests weren't covered. Co-pays were $40 a pop.

"It was beyond frustrating," says Gordon, 41. But making a combined salary of $90,000 from their dog-training school, "we were in this pocket where we made too much to get assistance but couldn't afford a good plan," says Babette, 39.

The Brennans say they'd do anything to get their kids - Sara, 2, and Ryan, 6, - the care they need. Finding a policy that will cover them may be easier than they think.

So in 2002 the couple decided to drop their policy and go off the health insurance grid.

It seemed like a reasonable gamble at the time: Pay out of pocket and maybe spend less than premiums and co-pays combined. For a while it worked too.

When Babette became pregnant with their second child in 2004, she negotiated with her doctor for delivery costs - and spent $2,000 less than insurance would have charged in premiums alone.

Then baby Sarah was diagnosed with Leber's amaurosis, a congenital eye disease that leaves her legally blind. Over the next few years, the doctors say, she'll require about $1,500 a year in ongoing care, a test that will cost $20,000 and possibly surgery costing $5,000 or more.

With Sarah's pre-existing condition, the Brennans feel like they won't get an affordable insurance policy at this point. Yet with little savings, they face the prospect of borrowing money from family to pay for Sarah's care or getting a corporate job just for the benefits.

Odds are you're comfortably covered by a group plan subsidized by your employer, as are more than 155 million Americans. But lying awake at night, it's all too possible to imagine yourself in the Brennans' nightmare scenario.

What if you were downsized, say, or left your job to start your own business? Could you afford the kind of policy you'd need? If a member of your family had a chronic condition, could you find an insurer who'd take you at any price?

These are tough questions: Premiums on the average individual-market family policy jumped 5.5 percent between 2005 and 2006, deductibles 8.5 percent; and in most states an insurer can reject you for almost any reason. Even so, you probably would not have to go without coverage.

Your options might not be great, but you'd have some. Here's what you'd have to do.

First, avoid a coverage gap

If someone in your family has a health condition and you let existing coverage lapse, you could find it very hard to get back on a plan on your own. Except in five states - Maine, Massachusetts, New Jersey, New York and Vermont - individual health plans can reject applicants for pre-existing illnesses. In many states, insurers can choose to exclude treatment for a year or more, or indefinitely.

Avoid this scenario entirely: If you're about to lose employer-sponsored insurance, sign up for COBRA, which will extend your company benefits for 18 months. You'll pay the same rate your company does now, plus up to 2 percent in administrative fees. (That's cheaper than you'd likely find for a comparable individual policy, but you won't enjoy the considerable subsidy you probably get from your employer. Brace yourself: The average employer sponsored plan costs $11,480 annually for a family.)

If you're still uninsured when the 18 months are up, act fast to get an individual policy - a federal law called HIPAA guarantees you access to coverage without exclusions if you apply within 63 days of losing COBRA.

Know what you need

Before you start hunting for a policy, look back at the past year of your health care to determine what you need.

Inevitably, the more extensive the coverage and the lower the deductible, the higher the premium. For the kind of low-deductible comprehensive family policy you'd get through a job, for example, you'd pay $950 a month or more. Expensive as that is, it could be the most cost-effective option if you need regular care and prefer paying up front.

If your family is fairly healthy, though, a high-deductible health plan might be better, since premiums can run about 60 percent lower. Pick a qualifying plan - which will have a minimum family deductible of $2,200 and a maximum out of pocket of $11,000 in 2007 - and you can save for those doctor bills in a tax-advantaged health savings account (HSA).

Families are allowed to put away up to $5,650 in an HSA this year, and whatever you don't spend in a given year can roll over tax-free into the next. Still, if you choose this option, you want to be sure you'll be able to set aside funds up to the deductible.

If you're healthy...

In most states, you'll probably get the best rates on the individual market, where your premiums don't have to cover the risks of others. Go to ehealthinsurance.com to shop your options.

Also consult with a handful of insurance brokers (find one in your area at nahu.org). Each one may have different companies and policies to offer you.

If you have a chronic illness...

Already missed the 63-day window to getting an individual policy without exclusions? Start by checking to see if an industry group or a professional organization in your field has negotiated a plan with guaranteed coverage.

The Freelancers Union, for example, offers policies to members in New York regardless of health, and at a 40 percent discount to typical premiums in the individual market, according to the organization's executive director.

Not every organization will offer you a break on rates, however. As affiliation groups become magnets for people too ill to find policies elsewhere, more insurers have stopped writing coverage. Those that remain may well charge more than you'd find on your own.

Other options: If you own a small business, you may be able to establish a group plan with as few as one employee (who could even be you). Again, this is mainly a way to get around rejection for pre-existing conditions or to get benefits such as maternity that are not often covered under individual plans. With such a small pool, you probably won't find premiums much lower than in the individual market.

Many states also have state-sponsored high-risk pools (find them at naschip.org) to help cover the "uninsurable," but they run up to twice as much as individual plans.

If you have no other options...

What if you can't get covered at all or can't afford it? You may at least be able to protect your kids.

Some states expanded the State Children's Health Insurance Program (SCHIP), a partner program of Medicaid, to allow middle-income families to buy comprehensive, guaranteed coverage for their children. (Partially funded with federal dollars, the program's budget is under debate in Congress, but it remains available for now.)

Otherwise, talk with your doctors about your predicament. Many are empathetic about health insurance costs and are therefore willing to negotiate. Or find clinics offering low-cost care at bphc.hrsa.gov.

For prescriptions, some pharmaceutical companies offer assistance; see rxassist.org and needymeds.com. Many hospitals offer reduced rates or financial assistance.

As for the Brennans, a frustrating search for new insurance finally had a solution. Because of Sarah's condition, they were unable to find an affordable family policy in the individual market, and their trade group didn't offer a group policy.

Deciding that they'd rather pay a high deductible than high premiums, they rejected a small business policy, which would have run $900 to $1,300 a month, according to estimates by independent insurance broker Alan Leafman.

But as it turns out, Sarah can qualify for a SCHIP policy with no deductible for about $160 per month, and the other Brennans can qualify for a family plan with Humana for a $131 monthly premium, $10,400 deductible and free well visits. Total monthly outlay: $291.

Babette says that such a policy sets her mind at ease. "At least this way I don't have to worry about what we'll do if there's an emergency." Top of page