Before Medicare, Sticker Shock and Rejection
21 04 08 - 15:16
RELAXING For Kathy and Henry Hamman, a new life in Sewanee, Tenn., has meant less stress, except for the health insurance.
By FRED BROCK
Published: April 21, 2008
IF you want to retire before you are 65 and eligible for Medicare, health insurance is vital to your plans. Without it, you risk losing everything.
Less than a third of employers offer retiree health benefits, down from almost half in 1993, according to a survey by the Mercer Health and Benefits consulting firm. Those without retiree health benefits who are eligible can use a patchwork of federal and state laws to build an insurance bridge - although an expensive one - to Medicare.
Usually, however, the best, least-expensive option is to buy an individual policy, but that can be problematic if you have pre- existing health conditions. Just ask Henry and Kathy Hamman.
The Hammans, both 61, left their jobs in Miami in 2005 to move to Sewanee, Tenn., where Mr. Hamman had gone to boarding school. They wanted to start a small business, enjoy a less stressful lifestyle and position themselves for retirement in a few years.
They have since started a publishing service agency and a small nonfiction press called Plateau Books.
There was only one problem: their health insurance coverage was dependent on Mr. Hamman's job at the University of Miami.
At first, the Hammans decided to take advantage of the Consolidated Omnibus Budget Reconciliation Act, known as Cobra, which allows most workers to keep, at their own expense, the coverage provided by their employers, usually for at least 18 months. But when the Hammans discovered that the cost of their Cobra plan would be $833 a month, they decided to buy less-expensive individual insurance in Tennessee.
Before leaving Florida, the couple filed an application for a policy with BlueCross BlueShield of Tennessee, and provided medical records. "The agent suggested that we might get 'uprated' for some relatively minor pre-existing conditions," Mr. Hamman recalled. "We were fully expecting to pay as much as $500 a month."
A few days later, their insurance agent called. BlueCross BlueShield had turned them down.
"We were stunned and flabbergasted," Mr. Hamman said. "I had only been in the hospital overnight twice in my entire life - once to have my tonsils removed and once for elective sinus surgery. Kathy had been in the hospital once for an elective procedure and another time when she was 11 years old to have her appendix removed. We are both runners."
Over the years, he said, he had occasionally dealt with "slightly elevated cholesterol," which was one reason BlueCross BlueShield rejected him. He said Mrs. Hamman was denied "because of slightly elevated blood pressure, which was easily controlled by inexpensive medication."
Luckily, when the denial came the Hammans were still within their eligibility period for Cobra, which they took advantage of despite the $833 premium. "It was good insurance; it paid almost everything," Mr. Hamman said. "But it was expensive."
Eventually, the Hammans dropped their Cobra coverage when they were accepted for an individual policy with a company called Assurant Health. Later, an increase in premiums by Assurant led them to buy another comprehensive policy with Golden Rule Insurance Company. It has a $5,000 annual deductible, but the premium is a bit more than $400 a month, about half of their old Cobra premium.
The Hammans were lucky because they could get coverage. "Trying to buy an individual policy is tough," said Stephen L. Wyss, the managing director of Affinity Group Underwriters in Glen Allen, Va. "About 40 percent of people in the 55-to-64 age group that we try to place are getting turned down because of pre-existing conditions. Almost everybody has some kind of health problem. Many may not be able to get insurance even if they can afford the premiums."
States have different regulations governing access to individual health insurance. Those with strict guaranteed-issue laws - Maine, New Jersey, New York and Vermont - require that insurance companies selling individual policies accept all applicants regardless of pre-existing conditions. (Massachusetts, which used to be in this group, now has mandatory universal coverage, which Maine and Vermont are pushing for.)
These states also have varying degrees of community rating, which means insurers must charge residents the same premiums regardless of health status. As a result, these policies are comparatively expensive. Guaranteed issue does not mean guaranteed affordability.
If you have no pre-existing medical conditions (however that is defined by your prospective insurance company), buying individual insurance should not be hard in a state without guaranteed-issue laws. A Web site run by the Georgetown University Health Policy Institute (healthinsuranceinfo.net) provides current information on state insurance rules.
For most people with pre- existing conditions and no employer-sponsored retiree coverage, the easy but costly way to get coverage is through Cobra. For family coverage, these policies can run up to $1,000 a month or more. If your company is too small to be covered by Cobra, or your company offers no worker health benefits, then you are on your own.
Cobra allows you, your spouse and eligible children to continue your employee insurance benefits for 18 months after you leave your job, regardless of pre- existing conditions. If you qualify for Medicare when you leave your job but your spouse does not, he or she can continue Cobra coverage for up to 36 months. Your spouse is also eligible for 36 months of coverage if you die or divorce.
You must apply within 60 days, so it can be a good idea to take Cobra coverage even if you plan to buy an individual policy. You may have to apply to more than one insurer; with Cobra in hand you won't be pressured by a deadline. You can always cancel the Cobra policy.
If you maintain Cobra coverage until it expires, and you are still not 65, there is a path to health insurance through another federal law until you become eligible for Medicare. The Health Insurance Portability and Accountability Act, known as Hipaa, allows those coming off Cobra to buy an individual policy regardless of pre-existing conditions.
Hipaa does not, however, regulate rates; the plans can be even more expensive than Cobra since insurers must accept all qualified applicants, no matter their health. You must apply for Hipaa coverage within 63 days of exhausting Cobra coverage.
If you aren't eligible for Cobra or Hipaa coverage and you can't qualify for individual insurance because of pre-existing conditions, your only choice may be a high-risk pool, if your state has one. In such cases, states contract with insurers to finance a pool for normally uninsurable people. The premiums are usually very high, and there can be waiting lists or moratoriums on accepting new participants.
If you can't get insurance of any kind in your state, and you don't want to move, you should consider postponing your retirement, if you can, until you are eligible for Medicare. The fastest way to deplete your retirement savings is eating it up with medical costs. These bills account for almost half of the personal bankruptcies in the United States.