What To Do When Your Employer Cancels Health Insurance Benefits

This is the first post in a 5-part series on health insurance. Over the next few weeks, I’ll share my experiences with high-deductible health plans, health savings accounts, how we save thousands on our health insurance bill, and using AFLAC for pregnancy.

More than a year ago today, we faced a horrifying reality. We had a new baby on the way, and our employer had to make the tough decision to completely abandon our group health insurance plan. How were we going to keep our family protected and pay for newborn care?

As I’ve talked to family and friends since then, the story repeats itself in other ways. Employers are cutting back benefits, raising premiums, or asking employees to contribute more. In extreme cases like ours, they abandon programs completely.

The reasons are many, but in our case there were multiple pressures—reduced cash flow and skyrocketing insurance premiums. When you employer’s health insurance bill starts to approach the 20-40% mark of someone’s salary, you can be sure they’ll take notice.

Assumptions I’m Making

When your employer says “goodbye” to their insurance policy, a couple of things will happen that will affect your ability to continue health coverage. Here are a few assumptions/words of caution in your search:

• COBRA coverage ends. COBRA, the law that allows you to continue health coverage if you are laid off by paying premiums yourself, usually dies with the policy if that policy is cancelled.
• State laws apply. For now, health insurance is still largely regulated by individual state laws. One of the first steps to understanding your options is to check what laws apply. Simply Google your state’s health insurance laws and various official and unofficial sites should help you out. This one was particularly helpful to me.
• Pre-existing conditions kick in. Group policies cover everyone in a company equally, but if you’re forced to look for individual insurance, you may be rejected for pre-existing conditions. Again, state laws apply, and you may have some alternatives to individual insurance that I’ll talk about below.
• Group policies are more expensive than individual policies. As a general rule, group policy costs are astronomical because insurance companies have to cover everyone in the group, even those with chronic diseases. Many people don’t realize this because their employer covers the cost. If you’re young and/or healthy, there’s a good chance that an individual policy is the better choice. By how much? As an idea, we now pay 35% of what we used to under a group plan. Yes, one-third!
• Everything I’m saying may end soon. President Obama’s new health care law could turn this entire post on its head, creating more avenues for health care and closing others. All we can do is stay tuned.

Possible Options

Your mileage may vary, but here are some of the options to consider when you’re asked to provide for yourself:

1. Get on a spouse’s health plan. This is a road a lot of people choose by default if their spouse has a solid job with health benefits. However, it’s not always the cheapest route. Employers may cover their employee’s insurance cost, but you’ll have to pay out-of-pocket for a spouse, and for the reasons I mentioned before, group policies can be expensive! If you have or are planning kids, it gets even worse.
2. Shop for individual health insurance. Instead of being covered under a group plan, you can deal with insurance companies directly and buy what’s known as an individual policy—kind of like car insurance or any other kind of insurance you may have. You have to go through medical underwriting, which means you could be denied or your premiums could be higher if your health isn’t good.
3. Buy a group policy through a home business. In Florida, for example, a Corporation or LLC with even a single employee (you) can buy a group policy. While more expensive, this could be an out for people with pre-existing conditions because by design, group policies have to cover everyone in a company.
4. Buy a conversion policy. Again in Florida (and in many other states), insurance companies are required to offer several “conversion” policies for people whose group health insurance coverage ends abruptly. There is no medical check, but the premium is based on sex and age. (If you’re wondering, women are typically more expensive to insure by roughly 25%.) The policies are comparable to what you had with a group policy, but if you’re young, the premiums are much lower.
5. Look at government programs. I’m not a big proponent of government programs, but if you’ve exhausted all other options, this beats not having any insurance all day long. Look into programs like Medicaid if you qualify. If you’re pregnant and without insurance (yikes!), there are also programs specifically designed for you.
6. Go without insurance. Unfortunately, a lot of people give up in frustration, resentment, or because a simple lack of funds, and choose to be completely uncovered. While great for curbing expenses in the short-term, this has two consequences. First, if anything should happen, you’re pretty much assuring financial disaster. Second, any gap in health coverage will be a pain for pre-existing condition coverage or some of the other options you had (conversion policies, for example, are only available for about 60 days).

Start Doing Some Research

I didn’t come up with this list in a hour, or even a day. Health insurance is incredibly complicated to navigate and understand, and it’s often in the insurance company’s best interest to avoid advertising other options you may have.

If your employer is cancelling insurance or asking you to bear a large part of the costs, do yourself a favor and start looking into what else you could do. It’s tough work, and like me, you’ll probably get incredibly frustrated along the way. But you owe it to yourself and your family.

Happy hunting!

Photo by Fotos Gov/Ba