Health Insurance: Planning For Coverage During a Career Change or Job Search

September 16, 2008

Health insurance is the single most important benefit that you must take care of during a job search or career change.

Risk of Being Uninsured

I have a friend who underwent major surgery about two years ago, and it was during a time that he was transitioning from one job to another. He didn’t elect to pay for health coverage during the time that he made the transition, and he was left with thousands of dollars in medical bills that he couldn’t pay. Luckily, the hospital cut him a deal, and he was able to pay the bills off quickly once he started his new job. However, some people aren’t so lucky, and the lack of health coverage ruins their financial picture.

Avoid Medical Debts

Medical expenses can literally force an individual or couple into bankruptcy, and bankruptcy should always be your last resort when it comes to making a financial decision. Make sure there is no gap in coverage when switching from one job to another, or one career to another. Here are four steps to follow when considering your health coverage and transitioning from one health insurance policy to another.

Choose If You Will Buy The Company Plan or Your Own Plan

  • The company plan: Every group health insurance plan is different. The major factor in choosing your new company’s plan is whether they cover any portion of your premium. If they cover a certain percentage of your premium or ALL of your premium, then this decision is a no brainer. Take the free money. Picking up the tab for your health coverage is a great benefit. However, many of them won’t pay for your family’s coverage, so make sure you research how much extra it will cost you per month through the company’s plan versus going out and buying your own plan.
  • Buying your own policy. Going out and buying your own policy can be pricey, but you have limitless choices. You can compare hundreds of different policies, whereas, your company will only offer you a choice is several different policies. If you have enough money to cover a high deductible, you may want to go with a high-deductible policy that covers you 100% after you meet the large calendar year deductible.

Choosing The Right Policy Type For You

1) The PPO: Many companies offer this plan within their health coverage provider. A PPO carries a higher premium, but it gives you more flexibility to see the doctor of your choice. You can choose your own doctor without paying an “out-of-network” co-pay price. The PPO and HMO also require you to share in the loss for certain procedures. They’ll cover 80% of a specified procedure, and you’re responsible for 20% of the cost of the procedure.

2) The HMO: The HMO was made popular with small co-pays and managed care within a defined network of providers. However, the downfall is that you must see a doctor in the provider’s preferred network, or they’ll charge you much higher co-pays to see out-of-network doctors. Plus, getting a referral to see a specialist is a pain in the butt.

3) The HRA or HSA Plan: Many companies are beginning to offer a high-deductible health coverage plan with a health reimbursement account or health savings account. This is a great option for those with enough cash to cover the high deductible, but want the flexibility of seeing whatever doctor they want, and keeping a portion of the premium they put into their health coverage. You pay for a cheaper premium health insurance plan that covers all of your expenses after you meet the deductible.

For an HSA, you set aside a portion of the premium you would have normally paid for a more expensive PPO or HMO plan, into a savings account that grows with interest, tax-free. You keep the money over the years, and you can use it for any medically related expense, including the deductible for your major medical plan.

For an HRA, your employer funds the account to cover a portion of your deductible or other expenses, and you use it as needed. This reduces the amount you pay out of pocket for the deductible, and it reduces the amount of premium you and the employer pay. The HSA is a great option for someone who is making the transition from the corporate world to the self-employment world.

Those are the three most common policy types, but there are many others to choose from.

Filling the Coverage Gap

If there will be a gap in health coverage for you or your family, don’t be like my friend. The most responsible financial choice you can make for you and your family is paying for health coverage with no gaps. In 1986, Congress passed the Consolidated Omnibus Reconciliation Act that allowed certain individuals to temporarily extend their group health coverage plans at a comparable group rate. This program is otherwise known as COBRA coverage. How they threw in the word “omnibus” in there, I have no idea. Educate me if you know.

Anyway, if you know that you’ll be out of work for a little bit or you’re making a transition to self-employment, you can temporarily extend your benefits at similar group rate plans. Remember, if your company was originally paying for a portion of your premium, you’ll see that the premium you pay will significantly increase, because your employer is no longer paying the majority of your premium. You can visit COBRA’s website to gain more information about this crucial plan to help you maintain health coverage.

Take Advantage Of the Remaining Health Benefits At Your Old Job

  • Get a physical before you quit.
  • Get a teeth cleaning before you leave if you have dental insurance
  • USE ALL OF THE MONEY in your flex savings account. This was YOUR money that funded this account. Don’t let it go to waste. Your employer WILL NOT reimburse you this money if you leave the company in the middle of the year. You can almost any health-related item from the FSA, so buy a new pair of glasses/contact, stock up on vitamins, and buy over-the-counter medications that you use on a regular basis.
  • Resolve any prior physical issues on your old health plan before leaving that company.

The Bottom Line

Do not leave yourself unisured with health care. I know that health care is a hot topic during this presidential election year, but the bottom line is that it’s your responsibility to make sure you have health coverage. If you find yourself struggling to pay the premiums, look at your budget with an unbiased eye, and weed out some expenses that are not necessary.

Take advantage of any premium paid by an employer, and make sure that health care benefits are a high priority when looking for a new job or career. Don’t be shy to ask plenty of questions to potential employers about their health care plan. In my opinion, the other benefits are secondary to this benefit. If you love the company, but they don’t offer a health plan, ask them for a monthly allowance as part of your compensation plan. Do the responsible thing, and square away your health care situation when changing your job or career.

Erik

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Erik

Erik Folgate is a husband and father living in Orlando who’s been writing about money online for 6 years. Digging himself out of $20k of debt after college and his former experience in the insurance industry give him some useful insights into personal finance issues.


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Comments

5 Responses to Health Insurance: Planning For Coverage During a Career Change or Job Search

  • Kurt

    i am currently covered under my spouses health plan. when i move to a new employer who also offers health insurance do i have to take their coverage? i live in ohio for governing laws.

  • Ann

    Is there a way to find out how much a potential new employer’s health insurance would pay for a specific condition? I have an ongoing, monthly need for a very expensive medication. My current employer insurance pays a huge amount, and I hesitate to change jobs without knowing how much will be paid by my new employer.
    Thanks for any information you can provide.

  • Matt

    I’ve been a subscriber to this blog for about a month now, based on a Google Reader recommendation, and really enjoy reading all of the posts here.

    I work in the Healthcare field (I’m a health actuary) and wanted to make a couple corrections to the above.

    PPO: What you described here is actually more like a traditional indemnity plan (which are rare these days). A Preferred Provider Organization actually does have a network, much like you describe under the HMO section. The insurance company contracts with a wide array of providers to get their insureds a sizable discount at in-network providers. However, if you choose to visit an out-of-network provider, the claims are paid at a much lower rate (they usually fall under a higher deductible with higher co-insurance amounts). You also can go to any specialist in your network without a referral. You do usually pay a higher premium for a plan like this because there is less control over your utilization compared to a POS plan or HMO.

    POS: This type of plan is very similar to a PPO, with two sets of benefits – both in and out of network provisions. The network is very wide with a wide choice of providers. The difference is, though, you must select a Primary Care Physician (PCP) when you sign up for the plan. This person acts as a “gatekeeper” and you must see your PCP before seeking other care (except, of course, for emergencies). For example, if I was in a PPO and wanted to see a dermatologist, I could just look one up that is in my network and go to him/her. In a POS plan, you must first visit your PCP who will decide whether or not to refer you to a dermatologist. Without that referral, claims are reimbursed at the lower, out of network rate. This is the POS’s way to manage your healthcare utilization, which lowers overall costs, which will probably mean a lower premium for members.

    HMO: Joining a Health Maintenance Organization is like joining a plan with a very narrow network and the lowest cost. Like the POS plan, you have a PCP you will start at, but from there, there isn’t much (if any) choice. There are many different type of HMOs that vary by area, but you will typically be limited to very few providers and will have much less say over your own care. There are no “out of network” provisions, so you must visit whoever the HMO dictates.

    The HRA or HSA Plan: Both are usually coupled with High Deductible Health Plans (which are usually PPO plans with a minimum deductible defined by the IRS), but only the HSA must be offered that way. Amen to letting that money grow tax free – and I also might add that those dollars can be used for things like Medicare Premiums into your retirement, so it’s a great investment. HSAs are actually owned by the employee, so you can take it with you, no matter where you work. HRAs are defined by the company and don’t necessarily have to go with the employee on termination.

    Another valuable benefit your employer might offer is a Flexible Savings Account (FSA). These allow employees on any type plan of plan divert pre-tax dollars into an account to pay qualified medical expenses out of. These funds, however, must be used by the end of the year.

    Sorry that was a long comment, but I had a lot to say!

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