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Getting the beat on individual insurance policies
Kiplinger Personal Finance
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Published: 12/24/2007 12:05 AM

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If you work for yourself, retire before Medicare kicks in, or don't have health insurance through your job, finding individual coverage that you can afford depends as much on the state you live in as the state of your health.

It often comes as a rude awakening to look for insurance on your own, especially if you've been spoiled by years of relatively carefree coverage through your employer. But that's been exacerbated over the past 10 years as states passed laws designed to guarantee all state residents access to coverage.

Some states chose to pass guaranteed-issue laws, which forbid insurance companies from rejecting people based on the condition of their health. But these well-intentioned laws have often backfired, forcing some healthy people to pay more in insurance premiums than the monthly mortgage on a small house.

The truth is that most people can find coverage on their own. And that's the case even if you're in a tough situation -- you have a medical condition, for example, or you want to retire early and aren't eligible for Medicare.

With state policies varying all over the map, there's no sure route to finding affordable health coverage on your own. But you have to start somewhere, so follow these steps. Depending on where you live, they might lead you to a dead end -- or to a far better deal than you have now.

Go online. When you shop for a policy on your own, eHealthInsurance is a great resource. It's the closest thing you'll find to a nationwide marketplace for health-insurance policies, and it lets you compare a number of options. If you'd prefer to work with someone in person rather than online, you can use a local health-insurance broker.

Look locally. Use a health-insurance broker who knows your market. Brokers not only will help you shop for price, they'll also know if a company has a reputation for raising premiums or hassling policyholders who file claims. If necessary, a broker can find a group for you to join or help you sign up for your state's high-risk pool. The National Association of Health Underwriters can also put you in touch with member agents in your area.

Get a list. Visit your state insurance department's Web site. You'll probably find a list of companies selling individual coverage in your state, including those that aren't handled by brokers. For example, many BlueCross/BlueShield plans -- often one of the few choices available in highly restrictive states -- prefer to deal directly with customers, or offer such low commissions that they aren't worth a broker's time. The insurance department might provide shopping tips for your state, as well as insurance-company complaint records.

Look into your state's insurance pool. If you can't find an individual policy, 33 states have high-risk pools that guarantee coverage to people who have been rejected by private insurers. Most states limit premiums to 125 percent to 150 percent of the cost of standard coverage (for information on each state's high-risk pool, go to www.naschip.org).

In the handful of states -- Arizona, Delaware, Florida, Georgia, Hawaii and Nevada -- that don't have open high-risk pools, you can still get coverage through the Health Insurance Portability and Accountability Act of 1996. HIPAA requires that states provide some kind of coverage after you leave your job -- regardless of your health -- as long as you had an eligible policy and haven't been without coverage for more than 63 days in the preceding 18 months. You generally have to exhaust your COBRA coverage first. The Georgetown University Health Policy Institute publishes consumer guides for each state at www.healthinsuranceinfo.net.

Consider COBRA. You could take advantage of federal COBRA legislation if you have left a company that provided group coverage. If your previous employer has 20 or more employees, the company is required by law to let you continue your group coverage for up to 18 months. Some states have similar laws for smaller employers. You generally foot the entire bill yourself, plus up to 2 percent in administrative charges, which can increase your costs considerably.

COBRA coverage tends to be a good deal if you're in poor health or in a market with few choices, or you want to stick with your current doctors. But because group plans often have more bells and whistles than you'd buy yourself, you might find a better deal by shopping on your own.

Find a new group plan. Join an association that has group coverage. Look into coverage through established trade associations, but avoid groups created just to sell insurance. Their initial low premiums could jump in the future.

Try short-term policies. Look into short-term insurance plans for people who don't qualify for group coverage but expect to in the near future. New college graduates often find themselves in this situation. Such stop-gap policies are offered for 60, 90 or 180 days. Contact insurance agents to see what's available. A couple of companies that offer such coverage are Fortis Health, (800) 800-1212, and Golden Rule, (800) 444-8990. The premium will vary according to the coverage, where you live and the size of your family. It could be several hundred dollars per month for family coverage.

Investigate HSAs. Look into health savings accounts. HSAs permit self-employed individuals to pay for medical insurance with tax-deductible dollars and to accumulate money in a tax-sheltered account that can be used to pay the deductible on the policy.

Weigh deductibles vs. co-payments. If you're in good health, you're generally better off with a policy that has a low deductible and high co-payments, because you're less likely to be making very many co-payments at all. A higher deductible makes more sense for a person in poor health; it means lower co-payments for more frequent visits. For maximum savings, consider both a high deductible and a high co-payment.