Fear the COBRA: Know Your Health Insurance Options

I’m far from an expert in health insurance coverage and I’m definitely at a loss as to why health insurance costs as much as it does (I’m eventually going to see Sicko, but I haven’t yet), but I have recently been forced to look at a couple insurance options for my family and I learned a few things.

My wife was working as a school teacher until last month, when she resigned for the foreseeable future to stay home and try life as a stay-at-home mom. Her insurance coverage was through the county government and the general perception has always been that because she was a teacher and a government employee, she had “great health care benefits”. I can say unequivocally that that is simply not the case. She definitely has health care coverage and the doctors in her HMO certainly seem to be very capable professionals. But her plan requires her, as do most HMOs, to obtain a referral for every type of treatment imaginable. So, if she has a skin disorder, she can’t go to a dermatologist. She first has to go to her primary care physician (a few weeks to get an appointment) to then get a referral to go to the dermatologist. Often, referral processing takes a few days and they can only be picked up in person, thus resulting in three trips to doctors’ offices for an ailment that could easily have been addressed with just one. But, that’s how HMOs work and that’s fine.

In contrast, my health insurance is through our company and we have what is considered to be very good coverage. We have an “opt-out” or “choice” plan that allows us to go to any physician in our network (the Blue Cross network, which is huge) without a referral and for a minimal co-pay each time. Hospital visits are covered entirely without co-payments. There is great peace of mind in our plan, since we never have to frustrate ourselves with the referral processes that make HMOs such a royal pain in the ass. I have always considered our insurance premiums to be “expensive”, but only because I was comparing them to the cheaper (but far less convenient) plans that are available through our broker.

I assumed, incorrectly, that my health insurance premiums would be higher than my wife’s and I thought that a nice cost-saving strategy would be to have my wife continue on her current plan through the COBRA (Consolidated Omnibus Budget Reconciliation Act) option that’s available to her. As it pertains to health insurance, COBRA means simply that an employee can continue to receive health insurance coverage under the group rates of their old employer for a limited amount of time. In my wife’s case, it would have been 1 year. Under COBRA rules, the employee must pay the full premium due under the old employer’s coverage and possibly an additional small percentage to cover administrative costs.

I assumed this would still mean a significant savings over adding my wife to my plan, since her coverage was “only” an HMO. I couldn’t have been more wrong. As it turns out, my wife’s coverage, which is not even in the same ballpark as my own in terms of quality and convenience, actually costs nearly four times as much per month. I couldn’t believe it. To have what amounts to pretty weak insurance coverage, my wife’s employer was paying about 90% of a $1000+-per-month premium. My wife was contributing the remaining 10% or $100 through her paycheck.

After seeing those numbers, I immediately called our broker. He informed me that my wife and an unlimited number of eventual kids could be added to my coverage for an additional $600. My wife could be added alone for only $350 until we have kids. Needless to say, I’m very happy to have my wife on a better health insurance plan for a fraction of what the COBRA costs would have been.

But I had to ask my broker if he knew why the premiums from my wife’s job as a teacher would be so high. He explained that large employers like local governments often have retirees tied to their health insurance plans, which negatively impacts the rates in a couple ways. First, the median age of the plan goes through the roof, which is a factor in determining premiums. Second, members of those types of plans, especially the seniors, tend to use them often, which also drives premiums higher.

Bottom line here is that health insurance costs are pretty much out of control. When an employer is paying nearly $12,000 per year in premiums for a single employee, it is no wonder that businesses can no longer afford to provide coverage. And in those situations, COBRA is simply not an option for an employee that is leaving a company. Until the system gets fixed are at least radically altered, finding affordable health insurance options is going to be a struggle for us all.

Tags: cobra health insurance coverage, employee health insurance, employer health insurance contributions, health insurance premiums

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