I'm about to leave my job at a big company that offers great benefits and plan to start my own business. But I'm worried about my health insurance. I've had great coverage through my employer but don't know what I should do when I go off on my own. Any advice?
If your spouse has an employee policy you can hop onto, that's usually your best bet. But that isn't an option for many people.
As long as your previous employer had 20 or more employees, you can continue on your old group policy for up to 18 months after you leave your job under a federal law called COBRA. But be prepared for sticker shock. You'll have to pay 100% of the premiums yourself, plus up to 2% in administrative charges.
The added cost could be surprising if you've been paying only a portion of your health premiums, as most employees do. In 2003, the average employee paid $2,412 for family health insurance, while employers kicked in $6,656, according to the Kaiser Family Foundation. With COBRA, you'd be footing the whole bill yourself -- averaging $9,068 for family coverage in 2003. If you're in poor health, though, this could still be your best bet.
If you're healthy, you may get a better deal on your own. Check out price quotes for individual policies at eHealthInsurance.com or contact a health insurance agent for help (go to the National Association of Health Underwriters Web site, the organization for health insurance agents, to find one in your area).
On the bright side, self-employed people can deduct 100% of their premiums from their taxes if they aren't eligible for coverage through an employer.
Keep in mind that premiums can vary tremendously depending on state laws for individual health insurance coverage. Some states let insurers charge higher premiums for people in poor health, which means you'll get a good deal if you're healthy. Others require insurers to charge everyone the same rate, regardless of their age or health. People in poor health can get a relatively good deal there, but young healthy people end up paying a lot more than they would in other states.
Another way to save money: Open a health savings account. Almost anyone under age 65 who buys a qualified health insurance policy with a deductible of at least $1,000 for individuals or $2,000 for families can open an HSA. You can then set aside pretax money up to the amount of the deductible (with an annual maximum of $2,600 for singles; $5,150 for families, plus an extra $500 if you're born before 1950) and withdraw your health savings tax-free for medical expenses. Any money you don't use can grow tax-deferred in the account until retirement. For more information about HSAs, see HSA Answers. For links to some resources that can help you find insurers offering high-deductible policies and financial institutions offering the health savings accounts, see my column on Investment Accounts for HSAs.
GETTING STARTED
