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Avoid COBRA's Painful Bite
by KimberlyLankford

I've been getting health insurance from my employer, but I just left my job and received a notice that I could continue with my old employer's policy but that it would cost hundreds of dollars more than what I'm paying now. Do I have other options?

If you're healthy, you might find a much less expensive policy on your own.

The notice you received was about COBRA coverage (the name refers to the 1986 budget act that created the rules). Under the law, an employer with 20 or more employees must give former workers a chance to continue their group coverage. Ex-employees can keep the coverage for up to 18 months after leaving the job.

But as you noticed, the price can jump enormously if your former employer had been subsidizing the premiums. That's because when you continue on COBRA coverage, you have to pay the entire bill yourself.

The average employee health insurance policy costs nearly $10,000 to cover a family in 2004, according to the Kaiser Family Foundation, but employees only paid, on average, $2,661 of the cost themselves -- their employers generally kicked in the rest. If you continued with that policy on COBRA, you'd have to pay the full $10,000 yourself (plus up to an additional 2% for administrative costs).

If you're not in the best health, that may be your best option because the insurer can't reject you from coverage under COBRA regardless of your health.

Even if you think you may be totally healthy, though, it's a good idea to sign up for COBRA until you're picked up by another insurer. A condition you thought was minor could cause you to be rejected or push your individual premiums higher. And you'll still be insured in case something happens while you're shopping around.

If you're healthy, you can generally find cheaper premiums than what you'll spend on a COBRA policy. A 2003 survey by the Kaiser Family Foundation found the average price for a family policy with the adults between 25 and 34 to be $244 per month (just under $3,000 per year); or $131 per month for singles ($1,572 for the year).

If you get a high-deductible policy (at least $1,000 for an individual or $2,000 for a family), you can qualify for a health savings account, which lets you make tax-deductible contributions up to the size of your deductible (with a maximum limit of $2,650 for individuals or $5,250 for families in 2005). You can use the money tax-free for medical expenses or it can grow tax-deferred until retirement (you can withdraw the money for non-medical expenses with no penalty after age 65, but you will owe a tax bill).

Prices for individual health insurance policies vary a lot from state to state -- they're much more expensive in New York, for example, because of the state's health insurance laws and little competition in the marketplace. The premiums will also vary based on your age, weight, existing medical conditions and more.

For help finding a policy, check out CobraInsurance.com, which sells many companies' policies, or go to the National Association of Health Underwriters Web site for a list of agents in your area. If you have any medical conditions, it's a good idea to get help from an agent who knows which companies are more likely to accept people with your medical condition so you will be less likely to end up getting rejected, which can make it tougher to get a policy from some other companies.

If you'd like to do the legwork yourself, check your state insurance department for a list of companies selling individual health insurance policies in your state (scroll down on our insurance page for links to state insurance departments).

If you know you'll be getting a new job within just a few months, you might want to consider a short-term health insurance policy. You can also check out prices at
CobraInsurance.com Web site.  But these policies have some limitations. Most are available only for up to 180 or 365 days, and they generally don't provide coverage for pregnancy, preventive care and preexisting conditions, and may not qualify you to open a health savings account (check with the company about HSA eligibility).

 
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