Are Individual Health Plans a Better Option Than Cobra?

Advice by Sarah Rubenstein



SEPTEMBER 27, 2005 (CAREERJOURNAL) - FROM THE WALL STREET JOURNAL ONLINE -- Many people who lose employer health benefits are allowed to pay for their former employers' insurance, generally for up to 18 months after the coverage ends, thanks to a federal law called Cobra. But cheaper policies in the individual insurance marketplace can be tempting. Are they a good idea?

This Out of Pocket column addresses that question. It also answers reader e-mails about health savings accounts and insurance networks. Write to outofpocket@wsj.com with questions about health care costs.



Jill Bergus and her family have relied on Cobra coverage since her husband was laid off in June. At about $1,200 a month, the insurance is "so expensive," writes Bergus, who lives in Dallas. "How do I find a good company for individual health plans? Plus, most of them seem to not cover pregnancy."



One way to scan the offerings is to type your ZIP code into the national online insurance broker eHealthInsurance.com. You can also search for an agent. Three places to look are the National Association of Health Underwriters, Association of Health Insurance Advisors and Independent Insurance Agents and Brokers of America.



Individual plans are often less expensive than Cobra coverage. They're also often less generous. "Cobra is a lot of money, but when you're looking at alternatives in the individual market, you really need to think about what's missing" in the coverage, says Paul Fronstin, director of the health research and education program at the Employee Benefit Research Institute.



By law, companies offering a group health plan have to include maternity care. But only about one-third of individual health plans nationwide provide some sort of maternity coverage, and usually at a high premium, according to eHealthInsurance. In many states, only one or two plans include maternity coverage. They usually limit coverage or require waiting periods of up to 12 months.



Some other cautions: In most states, consumers with health problems may be rejected for coverage or required to pay more than the initial price quote. Some plans also may exclude coverage for health conditions that people already have.



That said, plenty of people, especially young and healthy ones, may find an individual plan that satisfies them. But before you stop paying for Cobra (or don't sign up in the first place), make sure you're fully enrolled in an individual plan and that you're comfortable with what it covers. Once you've ruled out out Cobra, you've given up some key protections that could help you get the most comprehensive coverage later on.



Cobra stands for the Consolidated Omnibus Budget Reconciliation Act. For more information, see the Department of Labor's answers to frequently asked questions.





Health savings accounts are a tax-advantaged way to save and pay for many medical expenses. Where there are tax advantages, though, there's often a confusing set of rules.



Matthew McGinty, of Shaker Heights, Ohio, is one consumer who's trying to understand the nitty-gritty. To open an HSA, he must have an HSA-qualified insurance plan with a high deductible: at least $1,000 for single coverage or $2,000 for families.



McGinty wants to know whether, before he's satisfied the deductible, he'd have to pay "retail" prices for doctor and hospital visits or instead could benefit from any discounts his insurer has negotiated.



The latter. Even if you expect to pay for the visit yourself, it normally makes sense to go through the typical process for any insurance plan: The doctor bills your insurer, and your insurer then sends you a letter that explains how much you owe. Your insurer will normally take into account any discounts that you're entitled to.



With HSA plans, "our contracts [with medical providers] are still the same, the administration is still the same," says Aaron Graham, director of product development for McGinty's insurer, Medical Mutual of Ohio.



One problem: It can be tough to find out discounted rates before your appointment. Aetna Inc. recently said it's starting to reveal some of them.



Look at the Treasury Department's Web site to learn about HSAs. Search for insurers offering the plans in your state.





Dave Hargett says his insurance provides coverage for the medical equipment that he needs. The problem: Hargett, of Bolingbrook, Ill., would have to drive at least an hour to get to the closest equipment vendor that's part of his insurance company's network. Going to an out-of-network provider closer to home would mean he'd have to pay for a greater share of the cost himself.



Hargett's question: "Is there a general rule in the insurance field about in-network providers?"



Some states have "network adequacy" laws, which in general require insurers regulated by the states to maintain geographically-accessible networks of doctors, equipment vendors and other medical providers that can address the varied health needs of patients. Generally, if there isn't an in-network provider within a reasonable distance of a patient, the laws require insurers to provide in-network benefits for care from an out-of-network provider who's nearby, or to make other accommodations.



Insurers often have a basic incentive to offer robust networks: They want their products to be competitive with those of their rivals. But patients with problems can contact their state insurance department. Though the issue doesn't crop up as often as other types of insurance problems, "we many times are able to get [insurers] to go ahead and provide the [in-network] benefit," says Kansas Insurance Commissioner Sandy Praeger, vice chair of the health insurance and managed care committee of the National Association of Insurance Commissioners.



Many insurance plans, particularly those offered by large employers, are not regulated by the states. Sometimes state government can still try to help, though, or you may want to ask for help from the employer that's sponsoring your plan, Praeger says.