Health Insurance: What to do in the Face of Rising Costs

Mary Hunt

The test (you know the one) together with the required day-before prep wasn’t exactly pleasant. The real pain came several weeks later when I opened the bill.

The total charge for the test Katie Couric suggests every adult should have routinely: $4,000. And that’s no typo.

Our semi-adequate health insurance covered most of the cost, leaving us to pay about $900. Still, that’s about ten times what I would have guessed given our astronomically high monthly premiums.

The statistics are alarming if not shocking: Premiums for family coverage in employer-sponsored health insurance plans have increased by 73 percent since 2000. Currently they are rising three times faster than the average paycheck and more than twice the rate of inflation.

Here are the two most important things you must believe and understand about health insurance going forward:

Health insurance is not optional. Don’t skip insurance altogether. Several studies have found that medical expenses on top of already maxed-out financial situations are the leading cause of personal bankruptcy. Everyone needs some kind of health plan.

Health insurance will not pay for everything. Even with the best plan out there you will have medical bills to pay in sickness and in health.

Help! I am uninsured

Don’t feel like the Lone Ranger. According to the U.S. Census Bureau, 48.5 million Americans are uninsured for one reason or another. 

Change in employment. Of course the biggies are getting fired, laid off or downsized. Some companies are simply dropping benefits, leaving employees stunned and uninsured.

Growing up. This month college graduates are going to get more than their degree. They’re going to get a rude wake-up call; they’ve just entered the world of the uninsured. Most health plans drop coverage for dependents once they are out of school.

Early retirement. Unless you are at least 65 (the age at which you qualify for Medicare, the government’s insurance program for the elderly and disabled) hanging it up early may leave you uninsured.

Divorce or death. All too often the non-working spouse gets left without health coverage.

Where to turn

COBRA. Most employers must offer coverage after any kind of displacement—even to the divorced or widowed spouse of the employee—under the Consolidated Omnibus Budget Reconciliation Act of 1986, or COBRA. This allows you to continue temporary coverage at group rates through the employer’s plan, generally for up to 18 months. But you have to pay for the entire premium yourself. I hope you are sitting down before I tell you how much.

On average that comes to $600 to $700 a month for an individual and $1,400 for a family. Yes, I know. Outrageous.

State health insurance. In most states you can now get covereage in a high-risk pool if you are sick or otherwise uninsurable. Eligibility requirements and costs vary greatly from one state to another. Call your state department of insurance or visit its website to learn the details.

Medicaid. If you are in serious trouble you can turn to your state’s program. Generally Medicaid is for low- or no-income individuals. However, if you are found to be "medically needy" your state may waive the income guidelines and offer you coverage. To enroll in Medicaid you must apply to your state department of social services. Check your state’s website for details.

Employment. Getting health insurance coverage as a benefit of employment is your best bet, if at all possible. Some employers offer health benefits to part time employees.

Buy your own

You can find affordable health insurance on your own.

Individual policy. Both Sam’s Club and Costco are now offering individual health insurance plans. Check for details.

Paul Zane Pilzer, author of The New Health Insurance Solution: How to Get Cheaper, Better Coverage Without a Traditional Employee Plan (Wiley 2005), says individual policies that you purchase yourself can be half the price or less for the same coverage you’d have with an employer’s plan if you are healthy.

Here’s an example of Pilzer’s findings: The average monthly premium nationwide this year for an individual health insurance policy is $173 for a single healthy male age 35 and $541 for a family of four where the parents are 35 and have two kids, ages 5 and 8. This compares with monthly premiums of $375 for an individual and $1,166 for a family enrolled in an equivalent employer plan.

Individul insurance has its bonuses, says Pilzer, mainly that it stays with you no matter what job you have. But it can get confusing and expensive.

For example a 26-year-old woman in Peoria, Ill. who opts for a $5,000 deductible would pay $39 a month according to eHealthInsurance, an online marketplace for individual and family plans. Sounds cheap? The premium is quite low, but don’t forget she has to pay the first $5,000 each calendar year before benefits kick in.

For a $1,000 deductible plan her monthly premium would jump to $112. But it’s not as simple as just comparing monthly premiums. She must look carefully at all of the details of each policy.

Temporary policy. This is a good option if you are between jobs or for some other reason will be without health insurance for only a few months. You can get a high-deductible, short-term policy in a day (no long waiting periods) with coverage that will last up to 12 months.

Some university alumni associations offer short-term and long-term health care insurance programs to their members.  That  might be a good reason to join your alumni group. Or search online Golden and

HDHP. High-deductible health plans (HDHP) have in the past been recommended as a great way to reduce the annual premium for health insurance if you are buying  insurance on your own. The higher the deductible, the lower the premium.

And now many employers are offering HDHPs as a health-care choice. Should you make the switch? You should if you are healthy because you will save big.

Generally, this is how HDHPs work: You pay for all expenses up to the annual deductible—at least $1,000 for singles and $2,000 for families.

But there may be another benefit to consider. Your insurance provider has likely negotiated the costs of services with your doctors and hospitals. Take a colonoscopy, for example. The "retail" price the hospital charges may be $4,000. But your insurance company has negotiated that down to $2,800 for its clients. If your deductible is $2,000 your out-of-pocket charge will be $800, not the difference between $4,000 and the $2,000 deductible.

Health savings accounts. If you have a HSA-qualified HDHP (stay with me), the IRS will allow you to open a special savings account where you or your employer (or both)can contribute before-tax dollars that can be invested and earn interest tax-deferred, year after year. Withdrawals for qualified medical expenses also are tax-free. Even more, if you switch jobs, the account is yours unlike other reimbursement accounts that are not portable. You can use this money to cover your out-of-pocket medical expenses.

Of course, just like all federally regulated situations, there are rules.

Universal HSA principles

1. You must have an HSA-qualified high-deductible health plan to open or contribute to a health savings account (HSA) in your own name.

2. Switching to a high deductible health plan from a traditional low deduc-tible health plan will cut the cost of your health plan substantially. You deposit the savings gained into your health savings account. The whole point of a health savings account is to allow you to use that money on a tax-free basis to pay for your health expenses up to your new, higher deductible.

3. The money in your HSA is your own. This means your employer cannot tell you what to do with your own money or restrict what you can spend it on. Since it is your money, it goes with you when you change jobs.

4. You are in charge of your HSA funds, making you and your doctor the decision makers, not some third-party. Spending your own money also means that you will/should ask about the cost of health care expenditures, which will bring marketplace competition to the world of health care. Hopefully.

5. There is no time limit for when you can reimburse yourself for your health care expenses; you just need to keep legible receipts and records in case you do reimburse yourself, or in case you are audited.

6. You decide whether to spend from the account for your medical expenses and how much to spend, or whether to spend out-of-pocket and to save the HSA money for the future.

7. Anyone can contribute to another person’s HSA. The tax benefit from such a contribution is gained by the person receiving the contribution, not to the person giving the contribution.

8. You decide which company will hold the account, and what type of investments you make with your account. Any investment allowed for IRAs is allowed for HSAs.

9. IRS Publication 502 provides a list of allowable expenditures from your HSA.

The foregoing is just an overview of health savings accounts. Find more specific details at including how and where to open an HSA if you have a qualified HDHP.

Health insurance, like death and taxes, must be seen as unavoidable. However going broke to pay for it is not necessary. At least for now.

Questions to Ask When Choosing a Health Plan 

• What is the real cost? Consider monthly premiums, co-pays and deductibles.

• Who pays for prescriptions? Is there a co-pay? Separate deductible? 

• Which doctors can I see? Request the list of approved doctors and look it over carefully.

• What about specialists? Can you just make an appointment or must the primary-care physican decide if something is medically indicated? 

• Will I have a choice of hospitals? Look at the list of approved hospitals. What happens if you are injured or get sick while traveling? 

• Which prescriptions are covered? Check out the formulary—the list of medications the health plan covers.

• What other benefits are included? Like family counseling, chiropractic care, cancer screenings, dental and vision care.

  "Debt-Proof Living" was founded in 1992 by Mary Hunt. What began as a newsletter to encourage and empower people to break free from the bondage of consumer debt has grown into a huge community of ordinary people who have achieved remarkable success in their quest to effectively manage their money and stay out of debt. Today, "Debt-Proof Living" is read by close to 100,000 cheapskates.   Click here to subscribe.