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Do Your Homework to Ferret Out an Individual Policy

October 05, 1998|Bob Rosenblatt | As part of our continuing coverage on choosing a health plan, Benefits Bob writes about selecting an individual plan

When you work for a big company offering health insurance coverage, the employee benefits department floods your mailbox with brochures and notices about the open season for picking a health plan. You can spend hours reading all sorts of literature about your choices among HMOs, PPOs and the whole alphabet soup of modern medical care.

The task is much more daunting if your firm doesn't provide insurance, or you are a soldier in the growing army of entrepreneurs, consultants and part-timers. It's tough trying to make a living and worrying at the same time about how to get the best deal on insurance.

Careful shopping can pay off, and professionals can help you. Strategies will vary, depending on your family situation and your health.

If you are in good shape and single, for example, go for the high-deductible coverage. A 30-year-old Los Angeles resident might pay a premium of $200 a month for a health plan with a $500 deductible--that means you pay the first $500 of bills each year before the insurance kicks in. Boost the deductible to $2,500 a year and the cost of the insurance falls dramatically to just $100 a month.

However, if you have a spouse and a couple of young children, you can expect the family to cope routinely with colds, ear infections and maybe a virus or two to keep you running to the doctor's office. For this family, a no-deductible plan might be the best. It would cost about $300 a month.

Another possibility for the healthy, and affluent, consumer is the Medical Savings Account, which combines health insurance with a tax-free savings account. It's available to the self-employed and workers at companies with 50 or fewer employees that don't provide coverage.

The MSA's yearly deductible for health insurance ranges from $1,500 to $2,250 for an individual, and from $3,000 to $4,500 for a family. At the same time, you deposit in a tax-free savings or investment account a sum of cash equal to a share of the deductible--up to 65% for an individual, or up to 75% for a family.

The money in the tax-free accounts can be withdrawn to pay for medical bills before the annual deductible is reached. If you don't use it, the cash in the account piles up, gathering interest and can be used for bills the next year. Some financial institutions may allow the accounts to be invested in mutual funds. If you have enough money to pay the medical bills out of pocket, you can simply let the MSA pile up tax-free, just as in a regular Individual Retirement Account.

Some membership groups, such as college alumni associations, fraternal organizations and trade associations, may offer health insurance. Check very carefully before buying one of these products. Be wary of any deal that seems too cheap to be true--if the pool of covered people insured through the organization is too small, a few big bills could send rates soaring the next year.

And find out if the organization is simply selling you an individual policy or whether it acts as a group, enrolling you in group coverage. You have more rights as a member of a group if you go out later to buy another policy.

When you begin the search for coverage, contact an insurance agency that handles health coverage. Look for knowledgeable and experienced people. An agent who belongs to the National Assn. of Health Underwriters may have had additional training in the intricacies of insurance. Some carry the designation of Registered Health Underwriter.

Tell the truth. Don't make the mistake of thinking your minor health problems won't raise a red flag at the insurance company. "We constantly get people who say, 'I'm perfectly healthy,' yet they take several prescription drugs," noted William Shanbrom, who runs the William Shanbrom & Associates agency in Ojai. "Maybe they have a bad back, and they haven't yet sought surgical treatment. Maybe they are asthmatic. All these can cause underwriting problems."

Insurance companies can medically underwrite--that's a fancy word for charging a lot more to the high risks, the sick people who can run up medical bills. And the company can reject you entirely.

For people who have some health problems, or an ailing spouse or children who might run up big doctor's bills, it might be better to avoid the vagaries of the market and instead embrace the protections offered by federal and state laws.

"Remember that health insurance coverage is an avenue to health care--you don't want to be off the road," warned Alan Katz, senior vice president of Blue Cross of California, the state's biggest marketer of individual policies. "God forbid that you or someone in your family comes down with a serious ailment, and you don't have coverage. If you know you are leaving a job, start looking before the job ends." A key source of help is the federal Consolidated Budget Reconciliation Act. This law assures continued coverage for those who lost their participation in group health insurance because their job situation changed.

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