Score Big Savings on Health Coverage

Editor's note: This article has been updated since the health-reform law was passed.

The massive health-care-reform law will plug the gaps in coverage for millions of Americans. But most of the changes don’t take effect until 2014. By then, insurers won’t be able to reject anyone because of a preexisting condition; individuals and small businesses will be able to purchase policies on insurance exchanges; and low- and middle-income people will get help with premiums. The new law also requires all U.S. citizens and legal residents to have health insurance by 2014 or else pay a penalty.

But some people need help with their health insurance now -- especially if they’re facing a layoff, graduating from college or struggling to pay rising premiums. Here’s how you can find affordable coverage until the system changes in 2014.

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You’ve been laid off

When you lose your job, you may be able to get coverage from your spouse’s employer, continue your own coverage through COBRA -- the federal law that lets former employees continue group coverage for up to 18 months -- or search for an individual policy. Compare all three options: Many employers no longer subsidize coverage for family members, so adding on to your spouse’s plan could be expensive.

COBRA is available to employees of companies with 20 or more workers, and you can’t be rejected or charged a higher rate because of your health. But you’ll have to pay the full cost yourself, which averages $13,375 per year for family coverage and $4,824 per year for individuals, according to the Kaiser Family Foundation.

But if you’re healthy, you might still get a better deal on your own. Melissa Harrison, 32, lost her job as a horticulturalist at a nursery in Summerville, S.C., last year and she could have stayed on her old policy through COBRA, but her premiums would have jumped from $200 per month to $480. She went to eHealthInsurance.com, used a tool that lists the insurance networks that included her doctor, and found a policy issued by Celtic for $190 per month. The policy carries a $1,500 deductible and doesn’t charge for annual exams and screenings. And she liked the Celtic policy better than her old plan -- especially because she had been paying out-of-network charges to visit her doctor under her former employer’s plan.

Harrison concedes that it’s tough to focus on shopping for health insurance when you’re worrying about finding work. “But my mother drilled into me that you have to have insurance,” she says. “If you have a little time, you can get a better deal than COBRA and find a policy that fits you better, too.”

You have health issues

In 2014, insurers will be prohibited from rejecting people or charging them more because of their health status. Until then, premiums will be pricier if you’re older or have medical conditions. But if you know where to look and how to present a strong case to insurers, you may be able to find a better deal than expected.

Laura and Shaun Best of Stevenson Ranch, Cal., own a locksmith business specializing in bank security. The couple also have three kids between the ages of 13 and 20. The Bests have had their own health insurance for a long time, but the premiums kept creeping up. When they reached $929 per month, Laura, 47, started looking for alternatives and found a policy through Anthem Blue Cross for $305 per month. “I wasn’t surprised that I could find less-expensive insurance, although I was not expecting to save as much as we are,” she says.

One reason the Bests’ health insurance was so expensive was that Shaun, 52, has high blood pressure. But each insurer looks at health conditions differently. “One insurer may charge a lot for a particular condition, while another might offer the same person the lowest possible rate,” says Scott Leavitt, a health-insurance agent in Boise, Idaho, who generally gathers medical records and gets prices from at least three insurers for clients with medical conditions (find a local agent at www.nahu.org).

The Bests also saved money by making some trade-offs. They wanted insurance their doctor accepted, but they didn’t mind a $2,500 deductible because they plan to use HealthyCheck centers, which charge just $25 for basic visits and screenings. And they gave the insurer extra medical records showing that Shaun’s high blood pressure has been well controlled for 30 years with a very low dosage of medication. The search paid off, saving them more than $7,000 per year in health-insurance premiums.

If private insurers reject you, you may be able to get coverage through a state high-risk pool or through the new federal high-risk pool (although the federal pool requires you to be uninsured for six months first). See www.coverageforall.org to find out about the options available in your state.

If you’re coming off COBRA, you have access to some special health-insurance options. The Health Insurance Portability and Accountability act of 1996 (HIPAA) allows people who exhaust their COBRA eligibility to buy certain policies regardless of their health condition as long as they don’t have a gap in coverage longer than 63 days.

HIPAA coverage, which varies from state to state, doesn’t come cheap. Some states limit HIPAA policies to 145% of the cost of a standard health-insurance policy, but others permit insurers to charge up to 300% of the standard cost. In some states, all insurers must offer a HIPAA plan to eligible applicants regardless of preexisting conditions; in other states, one insurers provides all HIPAA coverage. And some states provide coverage by letting HIPAA-eligible people into their high-risk pool without a waiting period. For details about your state’s rules, go to www.coverageforall.org or contact your state insurance department (you can find links to the state departments at www.naic.org).

You’re a recent grad

At the other end of the spectrum are new college graduates who are having a tough time finding a job with benefits. In the past, children were generally dropped from their parents’ health insurance when they turned 18 or 19 or graduated from college. But the new health-care reform law requires insurers that offer dependent coverage to let adult children stay on their parents’ policies until age 26, starting with the plan year that begins after September 23, 2010 (which is January 1, 2011 for most plans), as long as they aren’t offered coverage through their own employer (beginning in 2014, however, children up to age 26 may stay on their parents’ health plan even if they are offered coverage through their employer).

Insurers cannot charge more for adult children than they do for younger children, but they may charge an extra premium per person or may charge a higher rate for family coverage than they do for single coverage or for an employee plus spouse.

You may not need to pay extra to keep an adult child on your policy if you’re maintaining a family policy anyway to insure younger siblings. But if the insurers bases premiums on the number of children, or if you’re insuring only one child and could otherwise switch from family coverage to rates for a single person or couple, it’s important to compare the extra cost against the price of buying an individual policy. In most states, a healthy twenty-something can buy health insurance for less than $150 per month -- sometimes much less.

Trevor Cushman, 22, had an emergency appendectomy during his senior year at the University of Southern California. Because of complications, the bill totaled $40,000 -- “which is the cost of a full year at my alma mater!” says Cushman. Most of the bill was covered by his parents’ policy.

After graduation, he shopped for coverage on his own and at first he signed up for a policy with a $5,000 deductible and a monthly premium of $107. But a few months later, he went to eHealthInsurance.com and found a Blue Shield policy for $51 a month with a $2,900 deductible plus coverage for a few doctor visits a year. Says Cushman, “Since I don’t really have any medical conditions and am fairly health overall, I really am most concerned with covering the big ticket ‘surprise’ items -- like an emergency appendectomy.”

Save even more with an HSA

Anyone can lower health-insurance premiums by raising the deductible. If you choose a deductible of at least $1,200 for single coverage or $2,400 for family coverage, you can make a tax-deductible contribution of up to $3,040 ($6,150 for family coverage) to a health savings account in 2010, which you can use tax-free for medical expenses in any year.

An HSA can be particularly beneficial for early retirees, who can cut their premiums substantially by raising the deductible (you can also contribute an extra $1,000 if you’re 55 or older). For instance, a healthy 55-year-old man in Illinois can get a Humana HSA-eligible policy with a $5,200 deductible for $207 per month.

You can’t contribute to an HSA after you sign up for Medicare, but you can use the money tax-free for medical expenses at any time, and you can use it penalty-free for anything after age 65. You can even use HSA money to cover premiums for Medicare parts A, B and D, and for Medicare Advantage plans (but not to pay medigap premiums). An HSA can also help pay qualified long-term-care premiums.