This month’s topic: Gap Health Insurance
Many Americans are dealing with this issue right now because of the difficulties in the economy. Even if this does not current affect you, please read through it to make sure that you are prepared. Also, if you know anyone who may need this information, please forward this to them. It could save them thousands of dollars! A special thanks to Victoria McCoy of Crown Benefits who contributed to this article (614-793-2272, Victoria@Crown-Benefits.com).
The Importance of Group Health Insurance Health insurance in the US is primarily associated with employment (group health insurance). Some people are covered by insurance they acquire on their own by buying directly from an insurance company. Fewer people are covered and covered well by individual health insurance, because it usually is harder to obtain, is medically underwritten and has a higher cost partially because the employer is not contributing to it and claim incidences are higher. In addition it covers less, has more pre-existing condition limitations and may have riders or exclusions because of prior health conditions or occupation. Group insurance is the preferred method of coverage, and can make a big difference in one’s overall financial condition. So what do you do during a gap in health insurance?
What is Gap Health Insurance? Gap health insurance is a broad term that I use to describe the type of health insurance or the method of acquiring or continuing health insurance to provide coverage in between employment or until someone is covered by government provided health insurance. Gaps can come about due to: 1. Job changes - leaving perhaps to step up into a better job 2. Lay-offs - perhaps because of the slow economy 3. Termination - getting fired possibly for underperformance or malfience (perhaps fraud or violation of company policy) 4.Retirement - you leave employment voluntarily or involuntarily prior to becoming covered by Medicare at age 65 5. Disability - you leave employment because of sickness or injury 6. Quit - leaving employment to pursue new opportunities such as self-employment
Financial Planning for Gaps in Coverage Considering these potential gaps in coverage, the difficulty of obtaining gap coverage, and the higher cost (and less coverage) provided by Individual Insurance it is any wonder that an estimated 1 out of 5 people are not covered by health insurance in the US? Proper plans for gaps can help you avoid medical debt and possibly becoming impoverished in a medical crisis. We know the importance from personal experience because during a gap in insurance we experienced a $20,000 surgery!
This newsletter will only briefly explain some of the options, but will not cover all of the details because they vary quite a bit due to federal guidelines, state insurance law and the circumstances of your job change, demographics and actuarial information to name a few. We want you to be aware of some of the options and the importance of gap insurance planning in case this happens to you. If you are going to face the gap: be sure to study your group insurance policy or certificate, employee manual and check with your state’s department of insurance. Also seek the advice of someone who is knowledgeable in health insurance.
COBRA Consolidated Omnibus Budget Reconciliation Act passed in 1986 is a federal law which requires employers with 20 or more employees to provide for continuation of coverage. Coverage is provided for termination of employment (other than gross misconduct) for up to 18 months, other events and circumstances extend coverage longer (e.g., death 36 months, disability 29 months).
The cost for coverage is paid by the employee at the group rate plus 2% to cover administration costs. The cost may be high, but compared to individual coverage it is a bargain. To offset the cost “The American Recovery and Reinvestment Act of 2009 (ARRA) provides for premium reductions and additional election opportunities for health benefits… individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit. The premium reduction applies to periods of health coverage beginning on or after February 17, 2009 and lasts for up to nine months for those eligible for COBRA during the period beginning September 1, 2008 and ending December 31, 2009 due to an involuntary termination of employment that occurred during that period. The TAA Health Coverage Improvement Act of 2009, enacted as part of ARRA, also made changes with regard to COBRA continuation coverage.”
ARRA temporarily extended COBRA benefits for certain Trade Adjustment Assistance (TAA) and Alternative Adjustment Assistance (ATAA) and Pension Benefit Guarantee Corporation (PBGC) benefit recipients. ATAA helps trade-affected workers who have lost their jobs as a result of increased imports or shifts in production out of the United States.
Begin your research about COBRA, ARRA, and TAA/ATAA at the following websites: http://www.dol.gov/dol/topic/health-plans/cobra.htm, http://www.dol.gov/ebsa/cobra.html, http://www.irs.gov/individuals/article/0,,id=109960,00.html
If a “qualifying event” occurs a qualifying person should notify the insurer or plan administrator, and then they have up to 60 days to apply for COBRA insurance, and then 45 days to pay the full premium. This intended 105 day loop-hole provides coverage for free if new insurance is obtained during that period. Insured’s must keep good records and verification of coverage to insure that there are no gaps in the insurance coverage.
HIPAA The Health Insurance Portability and Accountability Act does many things which include coverage for gaps. It may provide conversion to an individual plan (must commence within 63 days of loss of coverage), coverage when moving from one group to another group plan, and coverage for pre-existing conditions.
State COBRA and HIPAA provide coverage for many people during these gaps. However there are other gaps that are not provided for, such as if an employee is not HIPAA or COBRA eligible, or they exhaust those benefits. States try to plug the gaps in Federal legislation by providing for COBRA-like continuation, pools, conversions, open enrollments and other programs. COBRA – like continuation may be allowed up to 12 months depending on the state where you live.
Other Situations There are other situations such a divorce, death, and military deployment to mention a few that may come into play in the gap insurance analysis. Again check with a professional health insurance expert, your employment benefits booklet, insurance policies and with state and federal websites.
Insurability The Key advantage of continuation, conversion and open enrollment is not having to medically qualify for coverage if someone has a condition that may prevent them from purchasing individual health insurance, or they have pre-existing and ongoing conditions. Lastly, the cost may be better in one of these programs.
Government: Medicare, Medicaid, SCHIP Briefly Medicare provides for health care coverage for qualifying disabled and elderly (age 65+) individuals. Medicaid provides benefits for low income/low asset individuals. Children can qualify for health insurance under special State Health Insurance Plans (SCHIP) requirements. For Medicaid information check with your State or county.
Other Options: Temp and Individual Coverage Individual insurance may be acquired to provide insurance during gaps if you qualify. If someone is willing to have a higher deductible the cost may even be cheaper than COBRA, HIPAA, conversion or open enrollment options. A possible advantage of individual insurance is that it can be continued longer than the extensions provided by the Fed (COBRA) and your State. This would be especially helpful if someone became uninsurable or ratable during the extension period.
What about if someone only needs insurance for short time like graduating students? Temp or temporary insurance is a form of individual health insurance that provides for a pre-stated term from 30 days to 6 months. The cost of temp is usually low, because deductibles are high, there is no coverage for pre-existing conditions and it is non-renewable. Underwriting is a little less restrictive, and it is easier to obtain even if you have some health conditions. Again, check with an insurance agent – don’t just apply online for coverage because if you get denied it may be almost impossible to get coverage because one of the first questions on most applications is ‘have you ever been denied health insurance?’
For some people individual insurance may be your long term health insurance solution. Individual coverage has been on the upswing, specifically for women who are no longer of child bearing age. They are able to purchase coverage without paying for the maternity coverage which could result in lower premium. Most of the larger carriers have relaxed “some” of the underwriting allowing coverage for more people. For example, in years past if someone was taking any medication, there was potential for increased premium or automatic decline. Now depending on the health condition, carriers may allow up to 2 – 3 medications currently being taken and will issue the policy with a slightly modified premium. In addition, some of the major carriers are matching individual coverage to what group coverage offers.
Retirement Planning for Gaps If you are planning to retire early, prior to the time you will be covered by Medicare (age 65) your financial plan should take into consideration this gap in coverage: the increased cost, when COBRA runs out, when retiree group health insurance picks up or runs out, and individual health insurance options.
Blog Role: Informative and Interesting Financial Blog Discussions At eFinPLAN.com, you will find “News Feeds” on the right side of the screen. These are interesting financial articles and blogs from around the Web that I think are useful. Go to eFinPLAN Blogroll to see the following and more:
Umbrella Insurance? But My Umbrella Isn’t That Expensive from Binary Dollar Pay Off Mortgage Early? Or Invest? from fivecentnickel.com Reach Out to Unemployed Friends and Colleagues from Money Rules, Debt Stinks! Avoid These Mistakes When Trying To Sell Your Home from My Two Dollars How To Get A Free Financial Checkup from Moolanomy SIPC Insurance Coverage: What Happens if Your Broker Fails? from fivecentnickel.com How to Increase Your Salary from Free Money Finance 10 Things To Do Before Creating Your Next Budget from No Credit Needed How to Live a Rich Life — On a Budget from Get Rich Slowly Getting Ahead At Work: Are You A Hammer Or A Swiss Army Knife? from Wise Bread
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