The Miami Herald

Should you cuddle up with COBRA?

Stunned by news of losing their jobs, laid-off employees often are asked to quickly make a highly complex decision: What should they do about health insurance?

Should they opt to continue their employer coverage by shelling out big bucks for a policy known as COBRA? Seek an individual policy in the open market? Go without insurance?

In this struggling economy, growing numbers of workers face these tough decisions. They often must compare COBRA with dozens, even hundreds, of options in the individual market -- and do so in a short time.

So what's best? "The simple answer is that it all depends, " says Santiago Leon, who sells health insurance for ACC Insurance Brokers in Miami.

Experts say the general rule is that if you're older and/or have major health problems, go for COBRA. If you're younger and in good health, opt for an individual policy.

But many say there's no alternative at all. "I was offered COBRA, " says Alfonso Urcuyo, who lost his job several months ago with a healthcare company in Cooper City.

"But it was more than $1,000 a month for a family, and who can afford that when they're not working?" asks Urcuyo. "We don't have any coverage now. So far it's been pretty good. Knock on wood. We haven't really had any big health problems."

Experts say that his decision is understandable, but is the most risky. "The big mistake people make is that they say, 'Well, I'm pretty healthy right now. If I get sick, then I'll get a policy, ' " says Craig Thomas of Blue Cross Blue Shield of Florida. "But that's exactly the wrong thing to do."

Because once you've had a heart attack or get cancer, you can be denied a policy or not allowed coverage for "a preexisting condition."

"The main thing is don't allow a gap in coverage once you're in the insurance system, as long as you have options, " says Thomas. "Once you have a period when you're uninsured and try to get back, that's when you have a problem. That's why it's dangerous for people to roll the dice."

The reason: State law says that if you have a health policy, an insurer can't dump you, although it can raise the rates. If you have no coverage, an insurer can reject you for many reasons.

Some people losing their jobs might have the opportunity to opt for retiree insurance, which represents yet another option, but most must decide between COBRA, buying a policy on the individual market or becoming uninsured.

Here's a quick look at the two main options:

COBRA

This acronym stands for Consolidated Omnibus Budget Reconciliation Act, which is the law behind the insurance but doesn't explain at all what it is.

This federal law requires that anyone who had health insurance with a company with more than 20 employees is entitled when they leave to keep their coverage for up to 18 months, or sometimes longer if certain conditions apply. A similar state law covers companies with under 20 employees.

The hitch is the departing employee must pay the whole premium -- the portion they paid and the portion the employer paid, plus a two percent administration fee.

This is steep. For major South Florida employers, this can run $300 or $400 per month for an individual, $700 or so for a couple and about $1,100 for a family.

Those numbers, in fact, are a main reason why companies are outsourcing to India or relying more on temporary and part-time workers: That way employers avoid healthcare costs.

For departing employees looking at COBRA, "part of it depends on the group that you're leaving behind, " says Leon. "If you're young and the group has many expensive older people, " meaning higher group premiums, "you may do better on your own. If you're one of the expensive older people and the group is younger, you may be better off staying with COBRA."

If you pick COBRA, you get more options once your 18 months runs out. State law requires the insurer to offer you a conversion to an individual policy.

That provision does not apply to workers who received COBRA through large employers that are self-insured, but they can still get conversion policies through other state and federal laws, says Edward Domansky of the Florida Office of Insurance Regulation.

Conversion policies can get expensive. The law allows that "rates can be 200 percent of a standard risk policy, " says Thomas. "So basically you're paying double for a conversion policy. That sounds outrageous, but carriers lose a lot of money on conversion business."

Sandra Foertsch, of South Florida Health Insurance, an insurance agency, says conversions don't need to be outrageously expensive. "It really depends on the insurance company. Neighborhood Health Partnership can be very competitive."

The problem is that in conversion policies, people don't get a choice: They have to go with the company that offered them COBRA.

INDIVIDUAL MARKET

The options can be stunning: High deductible, health savings accounts, basic coverage for doctor visits but not for hospitals, catastrophic coverage that kicks in only when you have hospital stays.

"The good news is there's tremendous flexibility these days, " says Valerie Rubin, a spokeswoman for Blue Cross Blue Shield of Florida. "The bad news is -- and we understand this -- is that flexibility makes it more confusing."

People seeking to purchase a plan on their own can spend hours, perhaps days, studying, comparing and getting quotes on the Internet, or they can find a broker to help.

Monthly charges are generally based on age and sex. The older and sicker you are, the tougher the search becomes. "You might think you're healthy. 'Hey, I go out and play tennis every day!' But that might not be the way an insurance company sees it, " says Foertsch.

"A perfect example is a 62-year-old couple I had recently. They were declined by three insurance companies. The husband was taking medications for high blood pressure and cholesterol. She was taking medications for a hiatal hernia and anxiety, " says Foertsch.

She was able to find policies for both, but the wife's included provisions excluding coverage for her preexisting conditions.

Maternity benefits often require an extra charge, and often don't kick in until a year or more after the policy is purchased. Dental is also usually an extra charge, but many want it. "Dental is the top benefit for young people, " says Thomas.

SAVINGS ACCOUNTS

Health savings accounts -- which have high deductibles and tax-free dollars put in special bank accounts -- are a fairly new product, and still intensely debated within the industry.

"Nobody cares about HSA accounts after they've been laid off, " says Foertsch. "They're living hand to mouth. They don't have money to put into a health savings account."

Danny Saunders, a broker with Setnor Byer Insurance and Risk in Plantation, disagrees: "They're becoming more and more popular. I have one myself."

The premiums are lower and customers can put those extra dollars in a tax-free account. "It's better than half a plan, with a high deductible, or no




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