Whether you're perusing your employer's open-season packet or weighing your options after getting a pink slip, you may be facing some critical decisions about health coverage. Avoid these three common pitfalls:
1. Focusing on premiums aloneA higher-premium policy with low co-payments could be a better deal than a lower-premium policy. For example, if your doctor is out of your insurer's network, how much will you pay for each visit? And how many of the medications you take are brand-name drugs?
Many insurers are now charging co-insurance rather than fixed co-pays for generic, brand-name and specialty drugs. Your cost for a specialty drug could be as high as 38% of the cost of the medication. So if you take expensive medicines, you may end up paying hundreds of dollars more a year.
Your best bet, if you can find it, may be a policy that still charges co-pays for out-of-network visits and prescription drugs.
2. Skimping on coverage limitsOne of the costliest mistakes you can make is to buy a policy with inadequate coverage. These policies may look attractive because they have low premiums and low deductibles. But a maximum benefit of as little as $50,000 to $100,000 per accident or illness could leave you with tens of thousands of dollars in out-of-pocket expenses. Also beware of policies with long lists of exclusions and low dollar limits for each type of procedure.
A better way to lower your premiums is to buy a high-deductible policy with a coverage limit of at least $1 million ($3 million or $5 million would be even better). If you buy a policy with a deductible of at least $1,150 for single coverage or $2,300 for family coverage in 2009, you can also make tax-deductible contributions to a health savings account and use the money tax-free for medical expenses in any year.
3. Ignoring alternatives to COBRAIf you lose your job, you may sign up for coverage under COBRA, the federal law that lets you keep health insurance under your former employer's plan for up to 18 months (see "Know your COBRA rights").
The economic-stimulus plan provides a 65% subsidy for COBRA premiums for up to nine months for people who are laid off between Sept. 1, 2008, and Dec. 31, 2009. But after the subsidy ends, you'll pay full freight. The average employer policy costs $4,700 a year for individuals and $12,600 for families, according to the Kaiser Family Foundation.Video: Crooked insurers are still a problem
If you have health issues, COBRA may still be your best option. But if you're healthy, you may find a better deal on your own. Get price quotes on health insurance, or find a local agent through the National Association of Health Underwriters. For more, read "How to buy your own health coverage."
This article was reported by Kimberly Lankford for Kiplinger's Personal Finance Magazine.
Published Dec. 17, 2009