Forget the horror stories. Policies are available even if you're sick or retire early. By Kimberly Lankford, Contributing Editor July 31, 2007 As the debate over health care heats up, you'll hear plenty of tales about people who can't get insurance. Don't believe everything you hear. Yes, there are horror stories, but most of them should have happy endings. Buying affordable health insurance is more complicated if you don't have coverage through your employer. But the truth is that most people can find coverage on their own. And that's the case even if you're in a tough situation -- you have a medical condition, for example, or you want to retire early and aren't eligible for Medicare. RELATED LINKS What If Your State Has Expensive Insurance Webcast: Health Insurance Myths Health Insurance for Early Retirees Save Thousands on Insurance Learn here how real people solved their personal health-insurance crises. If you find yourself in a similar situation, don't wait for your state government or a presidential candidate to come to your rescue. Do what these people did and take matters into your own hands: Shop smart, make your case, and take advantage of laws already on the books. Consult a broker Problem: You're self-employed. Advertisement When he worked for an auto- and homeowners-insurance brokerage, Mike Federau, now 47, paid just $120 per month for coverage on himself and his son, Austin. So when he left the insurance business to become a self-employed real estate agent in Punta Gorda, Fla., he was in for a shock. Federau initially kept his former employer's coverage through COBRA, the federal law that requires an employer with 20 or more employees to let you stay on its health-insurance plan for up to 18 months after you leave your job. But you need to pay both the employer's and the employee's share of the cost. And without the employer subsidy, Federau's monthly premium jumped to $700. Federau contacted Wayne Sakamoto, a health-insurance broker in Naples, Fla. Sakamoto was able to find coverage for father and son for just $277 per month. And because Federau is self-employed, the premiums are tax-deductible. To keep his premiums low, Federau chose a policy with a $5,000 deductible. Like other types of insurance, he says, "health coverage was never meant to pay dollar one. It was meant to offer protection in a catastrophe." So far, his strategy is working. He and Austin, now 8, have had few medical expenses, and the policy provides one free physical per year -- worth several hundred dollars -- for each of them. Advertisement The high-deductible policy also makes Federau eligible for a health savings account, in which he can invest tax-deductible money (up to $5,650 for a family and $2,850 for individuals in 2007). He can withdraw money tax-free at any time to pay medical expenses that aren't covered by his insurance. Meanwhile, the money is parked in an interest-bearing account (go to HSAinsider.com or HSAfinder.com for more on health savings accounts). Self-employed individuals may have other options. In some states, businesses with just one or two employees qualify for group rates, which can be lower than individual premiums. Also look into coverage through established trade associations, but avoid groups created just to sell insurance. Their initial low premiums could jump in the future. Go to kiplinger.com/money/insurance for links to state insurance departments, where you can check small-group rules and an insurer's complaint record. When Sherry Gifford, 58, and her husband, Cale Nelson, 63, started a marine business in Marathon, Fla., they were bombarded by salespeople pitching association health-insurance policies. But after a year or two, premiums would jump by 20% or more. Healthy individuals would drop out, leaving the association primarily with sick people -- what insurers call an "actuarial death spiral." Gifford eventually found a high- deductible policy through Golden Rule that charges $577 per month for her and her husband. They also max out their health savings account, plus a catch-up contribution of $800 for people age 55 and older, and so far have amassed about $8,000 in their HSA. Advertisement Plan your exit Problem: You retired early and need coverage until age 65. Finding affordable health insurance can be a challenge for early retirees who aren't yet eligible for Medicare. You don't want to skimp on coverage, but you're likely to have more medical conditions than you did when you were younger, which can boost the cost. After Gary Stromberg retired three years ago at age 55 from a large management-consulting firm, he elected COBRA coverage for himself and his wife, Angela. Without his employer's subsidy, their premiums jumped to about $1,000 per month. Even though COBRA coverage can be expensive, don't drop it until you qualify for another policy. One advantage of COBRA is that you can't be rejected, regardless of your health, so it could be your best option if you have a medical condition. Advertisement The Strombergs elected to stick with COBRA while they shuttled between Florida and New York and made their long-term retirement plans. "We knew health insurance would be an expense we'd have until age 65, and we planned for it," says Gary. By the time the 18-month COBRA extension was up, the Strombergs had decided to settle primarily in Marco Island, Fla. But they wanted insurance coverage that would also work in New York, where they still own a home. They chose an Aetna policy that costs $880 per month. "We wanted a plan with a recognizable company, and Aetna had the most flexibility for New York and Florida doctors," says Gary. Choosing a deductible of $5,400 lowered their premiums by several hundred dollars per month. They max out contributions to their health savings account, out of which they spend only about $150 per month for Angela's blood-pressure medication. If individual coverage is too expensive, consider returning to work, possibly part-time, to qualify for health benefits until Medicare kicks in. In Florida, for example, working just 25 hours per week qualifies you for health benefits as a full-time employee. Shop the market Problem: Your employer doesn't offer coverage. Glenn Williams, a 33-year-old computer programmer in Las Vegas, works for a small company that doesn't provide health insurance. For an extra $180 a month, he could get coverage through his wife, Maricris, who has insurance through her employer. But Glenn thinks that's too much to pay -- especially because the Williamses were dissatisfied with the service they received from Maricris's HMO when she was being treated for cancer. So Glenn set out to find coverage on his own. Starting at eHealthInsurance, he looked into a number of policies before settling on one from Health Plan of Nevada. With a $2,500 deductible, it costs just $90 per month. Hint: When you shop for a policy on your own, eHealthInsurance is a great resource. It's the closest thing you'll find to a nationwide marketplace for health-insurance policies, and it lets you compare a number of options. If you'd prefer to work with someone in person rather than online, you can find a local health-insurance broker at www.nahu.org. Plead your case Problem: You have a medical condition. Don't assume you can't get health insurance just because you're in poor health. You might actually be able to choose among several alternatives. Before he was laid off, Russell Wilkins had insurance through his employer in California. Then he moved to Las Vegas, where he works on a contract basis as a computer programmer and doesn't have employer coverage. Wilkins, now 27, applied for an individual policy when he moved but was denied because he had had surgery a few months earlier for a cyst near his tailbone. Rather than go uninsured, he extended his coverage through COBRA for $170 per month. Sticking with COBRA is generally a good move if you have a medical condition. But Wilkins's insurer was a Kaiser Permanente HMO in California, which didn't have any network hospitals in Nevada. When Wilkins needed another operation on the cyst after he moved, Kaiser said he'd have to go to an in-network hospital in California. Wilkins returned to California for the surgery, and Kaiser covered all but $300 of the $11,000 bill. Six months later, Wilkins was again rejected when he applied for an individual policy. But this time he was aware that insurers have vastly different underwriting standards. One might reject you, while another offers you an attractive rate. And prices can vary enormously. After calling eHealthInsurance and explaining his condition, Wilkins was able to find coverage with a Health Plan of Nevada HMO for $120 per month. Wilkins strengthened his case by discussing his condition with the broker up front. "We were able to tell him he'd be better off applying to a different carrier that has a tendency to accept people with a condition like his," says Bob Hurley, of eHealthInsurance. If you have a health condition and would like to work with eHealthInsurance, call the customer-service number (800-977-8860) rather than going online for a quote. Or work with a local insurance broker, who will be able to plead your case with companies or add a cover letter explaining how you manage your condition. Like Wilkins, be aware that insurers offer different coverage options and terms. One company may offer you a policy that excludes certain conditions. Another may cover the condition but boost your premiums by 25% to 150%. It's generally better to pay extra than to accept an exclusion for a potentially expensive condition. If you can't find an individual policy, 33 states have high-risk pools that guarantee coverage to people who have been rejected by private insurers. Most states limit premiums to 125% to 150% of the cost of standard coverage (for information on each state's high-risk pool, go to www.naschip.org). You may have a better alternative. In Utah, for example, insurers must offer a "conversion policy" to eligible individuals after they exhaust their COBRA coverage. "It's usually a little less expensive and has nicer benefits than the high-risk pool," says Terry Talbot, a benefits consultant in Salt Lake City. In the handful of states -- Arizona, Delaware, Florida, Georgia, Hawaii and Nevada -- that don't have open high-risk pools, you can still get coverage through the Health Insurance Portability and Accountability Act of 1996. HIPAA requires that states provide some kind of coverage after you leave your job -- regardless of your health -- as long as you had an eligible policy and haven't been without coverage for more than 63 days in the preceding 18 months. You generally have to exhaust your COBRA coverage first. The Georgetown University Health Policy Institute publishes consumer guides for each state at www.healthinsuranceinfo.net. Mind the kids Problem: You want policies for adult children. Most children can stay on their parents' policies as long as they're full-time students, up to age 23 (or up to age 30 in a number of states). After that, they can get coverage for up to 36 months through COBRA. But in the Strombergs' case, that wasn't a viable option when son Michael started college in Boca Raton, Fla. Gary had retired and was already paying steep premiums for himself and Angela. Initially, the Strombergs found a student policy through Michael's school. But Gary wasn't happy with the policy's extremely low coverage limits of $50,000 per accident or illness. The Strombergs found an individual policy for Michael that cost just $80 per month. The deductible was $2,500, but the policy had higher coverage limits -- which, Gary figured, protected both Michael's health and his own retirement nest egg. Now 22, Michael has been able to keep his policy since he graduated this spring. And it's fortunate that he lives in Florida instead of New York, where the same coverage would cost him hundreds of dollars more each month (see What If Your State Has Expensive Insurance?).