Filling a Health-Coverage Gap
Gaps in health-insurance coverage can open under many circumstances. You changed jobs and the new insurance doesn't become effective immediately; you just graduated from college, can no longer be covered under your parents' plan and have not yet lined up a job with health benefits; you're between jobs, and don't know when you'll work next.
Even the smallest gap is cause for anxiety, since unexpected hospital bills paid entirely out-of-pocket can be financially draining.
Fortunately, many short-term options are available. Some people choose to continue their group health coverage when they leave a job under requirements set forth by the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). Others obtain temporary continuation of their coverage as set forth by state laws. Still others buy an individual short-term plan.
Knowing the pros and cons of each option can help you decide upon the plan that's best for you.
"COBRA is a federal law that covers private- and public-sector group (health) plans with 20 or more workers," says Paul Fronstin, senior research associate at the Employee Benefit Research Institute (EBRI) in Washington, D.C. The goal of the law is to relieve hardship imposed on workers and their families when they leave a job by providing a transition period before other coverage becomes effective. Under COBRA, employers with health-insurance plans must offer continued access to group health insurance to qualified persons if they lose coverage as a result of a "qualifying event" -- such as when a worker's employment ends for reasons other than gross misconduct.
Coverage continues for 18 months or longer, depending on the situation. For instance, spouses and dependent children of workers who die, divorce or legally separate can be covered for 36 months.
Premiums may be hefty compared with what a worker contributed as an employee. Under COBRA, departing workers can be required to pay up to 102 percent of the premium. Still, Fronstin views the COBRA-plan option as a less expensive, more comprehensive choice than buying medical insurance as an individual. In a commentary published by EBRI last year, Fronstin wrote, "Employment-based health insurance typically covers a larger array of benefits than individually purchased health insurance for an equivalent premium."
Some states have "continuation of coverage" laws that apply to firms with fewer than 20 employees. A few states passed continuation of coverage laws before COBRA was passed and, in general, extend coverage for three to six months, according to Fronstin. To find out whether you're covered, consult your company's human-resources department. Or, check with your state's health department or insurance commissioner.
Companies offering short-term policies can be found easily on the Internet (using a search engine, enter the key words "temporary health insurance" or "short-term health insurance"), or by consulting an independent insurance agent.
Coverage periods are typically brief. Golden Rule Insurance, for instance, offers a short-term major medical plan in which the consumer chooses coverage for one to six months. Fortis Health offers short-term medical plans for 30 to 185 days, says Kathy Quirk, a spokeswoman.
Not all companies do business in all states. Companies usually offer a choice of deductibles ($250, $500 or $1,000, for example) and a choice of major medical coverage (with 80 percent of covered expenses paid or 50 percent of covered expenses paid). Here's one way a temporary plan could work: A 22-year-old woman in Wisconsin who just graduated from college and wants a 60-day, 80/20 major medical plan with a $500 deductible would pay a total, lump-sum premium of $86.40.
Applications for the policies are fairly brief. Generally, no physical exam is required. But if you have pre-existing conditions -- such as heart disease or other serious problems -- you may be denied coverage.
Short-term plans are intended to cover unexpected illness and accidents, not preventive care. If you anticipate still needing coverage after the temporary plan expires, you may be able to apply for a second policy.
To minimize costs, choose a plan with a higher deductible and 50/50 coverage, and pay the premium in a single payment rather than in installments.
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Last Editorial Review: 1/30/2005 10:44:39 PM