A reader writes…

I had an anonymous reader write in telling me that her husband was going to be laid off soon and was asking my thoughts about a Cobra health insurance policy versus a private health insurance policy.  She wants to be prepared with medical coverage when her husband reaches the ugly unemployment “status.”   As I thought about her dilemma, I thought back to early September of this year, when my company had it’s benefit “open enrollment.”  More on this later…

As far as I am aware, Cobra insurance is usually the same coverage with the same company as you had with your employer but you would have to pay 100% of the premiums, including the company’s share that they normally paid, and an administrative fee.  Private health insurance is similar but usually more costly.  Insurance is confusing no matter what kind it is.  It is no wonder why so many people are not covered by health insurance around the world.

My suggestion

No matter what decision she makes, she will need to have some sort of medical coverage for her and her family.  That coverage should be based on her family’s current medical conditions, if any.  If the family is young and healthy, she may want to elect a higher deductible, lower premium (catastrophic) type health insurance plan and invest the difference she would save in a savings account.  This will ensure she has the money needed for the higher deductible in case of a major medical emergency.  On the other hand, if the coverage of the insurance outweighs the premium paid, then she should go with a plan that has better coverage and a lower deductible.  Shopping for insurance is almost like shopping for a car.  You have to figure your needs and wants and how often you will use them.  I suggest the following:

• My reader should call her current health insurance provider and ask to talk with someone about a Cobra policy.  She should find out the cost, coverage and maximum term she can elect.
• She should shop around.  Health insurance, just like auto insurance can vary greatly in price and coverage.  Online at site such as http://www.ehealthinsurance.com, for example will offer many different plans that may suite her family’s needs.  She should compare those prices and coverage with that of the Cobra policy.
• If my reader is employed, she should check out the prices and coverage of her company’s health insurance plans and ask if she can sign up before open enrollment due to her husband’s job loss.  Sometimes companies will have exceptions on adding health insurance coverage.  She could also buy a short term health insurance plan that would cover her until her company has their annual benefits open enrollment.

Now for my health insurance experience…

This past September, my employer conducted their annual “open enrollment.”  This requires every employee to reapply for health insurance, dental insurance and other benefits yearly.  The good news?  Our benefits were remaining the same.  The bad news?  Health care costs were going up. (big surprise)

The “Cadillac” plan

As I looked around the room, it appeared that most people were interested in the most expensive plan.  The cost?  Only $446.00 a month.  WHAT?!  Did I hear that right?  Hmmmm…. without listening to the benefits, I whipped out my Android phone/portable calculator and figured… $5352.00 a year out of my pay.  That looks like a yearly Roth IRA contribution and then some!  So what do I get? Free Texas Rangers season tickets? Trip to Hawaii?  There has to be something I get in return for paying that sort of price… This is what I was told:

• $1250.00 in an account to pay for doctor’s visits/prescriptions
• Discount on prescriptions
• After the $1250 is gone, I would have to pay 100% until my deductible is met
• In-Network deductible of $1600 for individual/$3200 for family per year
• My maximum out of pocket would be $4000.00 individual/$8000 for family for out of network
• After the deductible is reached the insurance will pay 80%

So this is what I hear… I pay $5352.00 a year to get $1250.00 to only use on medical care, if needed and I still have out of pocket expenses to pay to reach a deductible before the insurance covers the rest.  So I pay $5352.00 for the year and I get 1250.00 to be used towards a $8000.00 out of network deductible.  So, worse case scenario,  I would have to pay a total of $12102.00 just to get my insurance to pick up the remaining 80% of the bill.  This seems like a lot of $$ for a “what if” scenario.  My family and I rarely go to the doctor, so I KNOW I am going to pass on this one…

Prepared for a catastrophe

At this point, you are probably thinking I am an idiot and that it would be irresponsible for me to throw caution to the wind and not have some sort of health coverage for my family.  I agree, that would be very idiotic.  My employer offers another plan, which is called the CAT plan.  CAT = Catastrophe.  This insurance is mucho cheapo…  I would pay $45.00 a month/$540 a year.  Here is what I would get in return:

• Full price on doctor’s visits until my deductible is met.
• Discount on prescriptions
• In-Network deductible of $5000 for individual/$10,000 for family per year
• My maximum out of pocket would be $10,000 individual/$20,000 for family for out of network
• After the deductible is reached the insurance will pay 80%

I am going with this plan and here is why.  $4812 in savings a year.  Since my family and I are not sickly we would not benefit from the more expensive, slightly more coverage plan.  However, we would have coverage in case of an extreme emergency would happen.

Being financially responsible and efficient

With a difference of $4812 between the two plans, I would recommend saving the difference in a “medical emergency savings fund” (savings account) until it reached my maximum out of network deductible.  $20k in my case.  This would take a little over 4 years in savings.  Since I am currently in debt, I am forced to take that difference in savings and pay off my debtors.  I still feel that is a win win.  What is your opinion of health care insurance?  Do you think I am being financially smart and efficient or just plain irresponsible?  Let me know.  I value your opinon.

To your financial health – Martilyo!