Health Insurance Part I 4/15/07

Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC
4/15/07

Health Insurance Part I
4/15/07

“Health Insurance Part I”

4/15/07

Health insurance is a vital part of an individual’s financial plan. Being caught without health insurance can devastate your finances and ultimately, your retirement. Therefore, you must be careful when switching jobs to make sure you know all your options and be aware of time requirements.

Option 1- COBRA.  If you leave or are terminated from a company that offered a group health plan and the company employs more than 20 people, then you are eligible for COBRA. COBRA is a federal law that provides continuation of health coverage for qualified workers, their spouses and their dependent children for a period of time ranging from 18 months to 36 months. To be eligible for COBRA, a “qualifying event” must occur including termination of job, reduced hours, employee entitled to Medicare, death, divorce, loss of dependent child status, etc.  The cost of COBRA falls completely on the individual, including the premium cost that the employer formerly paid. The key benefit of COBRA is that your coverage must be identical to the coverage you had through the employer and this avoids the major problem of pre-existing conditions. 

If you decide not to take COBRA and you plan to find another job that offers group coverage, know that you’re taking a big risk.  You must understand what can happen if your job search takes longer than you expected or you are diagnosed with a serious illness.  Federal HIPAA law requires a new employer’s group plan to give an individual credit for the length of time they had prior continuous health coverage, without a break in coverage of 63 days or more, thereby reducing or eliminating the 12-month exclusion period for pre-existing conditions. If you have a gap of more than 63 days, then you lose your health insurance rights under HIPAA and your new employer is not required to provide the coverage without exclusions.

Option 2- Individual Policy.  Another option instead of taking COBRA is to purchase an individual policy. It can be difficult to buy individual health coverage because the policies are medically underwritten. They could reject you for coverage completely or exclude coverage of your pre-existing conditions. Also, almost all individual policies have a 12-month waiting period for pre-existing conditions meaning they do not pay for cost related to these conditions for the first 12-months.

Option 3- AHIP.  Finally, you could purchase health insurance through the Alabama Health Insurance Plan (AHIP). The State of Alabama provides a health insurance option available to anyone who has been enrolled in an employer’s health plan or in extended COBRA coverage after employment has ended. It is administered by the State of Alabama and coverage is offered through Blue Cross and Blue Shield of Alabama and United Healthcare. This was designed after the new HIPAA law so remember you must not have a gap in coverage for more than 63 days or you will not be eligible for the State of Alabama plans. Under the AHIP plans you will not have any waiting periods for pre-existing conditions therefore this is a great plan for people with chronic health issues. Note that the premiums are relatively high due to the no waiting periods for pre-existing conditions. You can find out more information at www.alseib.org or by calling 1-877-619-2447.

Next week, I’ll discuss health insurance issues for retirees including Medicare Part D.  My thanks to Kimberly Reynolds for her assistance with this article.

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