Stay covered when you're out in the cold

Between jobs? Good health insurance might not cost you as much - or be as hard to come by - as it used to.

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By Amanda Gengler, Money magazine writer

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(Money Magazine) -- The only thing more anxiety-producing than losing your job: losing your health insurance. Traditionally, post-pink slip coverage options have been pretty pricey. But in February, Congress signed off on a short-term premium subsidy for laid-off workers. This came on top of the fact that insurers have been responding to the needs of a "freelance nation" with a greater variety of individual-market plans.

Trouble is, the system is still pretty confusing. Need coverage till your next gig? Follow this guide.

First: ask for more. Over the past decade, exit packages have gotten less generous, says Bill Belknap of the Five O'Clock Club, a career counseling firm. It was once standard to include health benefits. But today 26% of large employers pay nothing toward former employees' insurance costs during their severance periods, reports benefits consulting firm Hewitt Associates. If yours offers little or no help, "it doesn't hurt to ask your boss for more," Belknap says. Longtime employees, senior-level staff, and those with sick family members may have the best luck, he predicts.

Second: piggyback. If your spouse has a group plan that will cover you, sign up fast: A job loss is a special circumstance in which you can be added - but you have only 30 days from your coverage end date to enroll. "It's the best option," says Paul Fronstin, director of health research at the Employee Benefit Research Institute. "It's the least costly and least disruptive, and you're guaranteed coverage."

Third: buy the status quo. Under the federal COBRA law, companies with at least 20 employees typically must give laid-off workers the option to extend group coverage for 18 months. Many states have continuation requirements for smaller employers as well. (Check at naic.org.) The catch: The company usually no longer pays any of the premium. Until recently that meant you'd foot an average of $400 a month for an individual and $1,050 for a family, according to Kaiser Family Foundation.

But with the new subsidy, Uncle Sam may pick up 65% of your bill for up to nine months (see the box above). You can keep benefits, at full cost, another nine. For most people - except, perhaps, the young and healthy - this is still cheaper than a comparable individual-market plan, says Tom Billet, a benefits consultant at Watson Wyatt. Besides, if you have an existing condition, you may have to exhaust COBRA to guarantee coverage of that health issue in a future plan.

You have 60 days to take COBRA, but it's retroactive over that time - so you can enroll at day 50 and file a claim for a doctor visit on day 49. Your employer or insurer will notify you about the subsidy (the companies get the money, so you're billed for only 35%). To qualify, you'll need to have been let go between Sept. 1, 2008, and Dec. 31, 2009; if you turned down COBRA already, you have a second chance to enroll. You can't be eligible for Medicare or a spouse's plan. And if your modified adjusted gross income for the year exceeds $125,000 - or $250,000 for couples - you'll pay some or all of the benefit back at tax time.

A final note: If your company goes under, so too does your COBRA coverage, unfortunately.

Fourth: go it alone. Research your next step well before COBRA expires: You want to avoid gaps in coverage to avoid exclusions on pre-existing conditions in your next plan. Check if trade groups in your field offer insurance. Also shop the individual market at sites like ehealthinsurance.com. (But know that premiums listed are estimates - your outlay will be based on medical underwriting, which figures in your health risks.)

The past five years have seen an explosion in plan types. On one end are policies with comprehensive benefits and low deductibles (premiums for a healthy family can exceed $1,000 a month); on the other, catastrophic plans with very high deductibles ($200 a month).

The decision comes down to what you can afford and how much risk you're willing to take. Just watch out for low coverage limits, which leave you vulnerable; and skip short-term options, which make you undergo new medical underwriting when you renew. Before you buy any policy, verify that it's licensed with your state department of insurance.

If you can't get coverage due to a health issue or will struggle to pay premiums while unemployed, check at naic.org for state-based last resorts, such as high-risk pools and subsidized programs for children.

And when you land your next job? Sign up for insurance posthaste.

Many families are changing the way they spend money with regard to their kids in light of the financial crisis. Are you? Tell us how, at makeover@moneymail.com. For the CNNMoney.com Comment Policy, click here. To top of page To top of page

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