Don't Get Sick - twentysomethings uninsured

Kiplinger's Personal Finance Magazine, July, 2000
by Catherine Siskos

STARTING OUT, with premiums too high to pay on an entry-level salary, many young workers are taking the risk of going without MEDICAL COVERAGE.

AFTER graduating from Penn State last year, Jessica Cullen headed for Charlotte, N.C., to start a career in fund-raising. While she learned how to drum up money for others, she came up a little short herself. Her entry-level job did not provide health benefits, and with a pretax salary of $1,600 a month she didn't think she could comfortably afford the cheapest individual health plan she could find, which cost $80 a month.

At first, Cullen, 23, got coverage under her parents' policy, which insures adult children for up to six months after they graduate from college. But when that coverage expired last November, Cullen joined the ranks of twentysomethings who are uninsured. "It worried me that I couldn't pay the doctor if I got really sick," says Cullen. "But if I paid for insurance, I wouldn't have anything left over for a non-medical emergency."

Nearly one in three young adults between the ages of 18 and 24 has no health insurance--the highest proportion of any age group, according to the U.S. Census Bureau (it's about one in four among adults between 25 and 34, the second-largest uninsured group). Young adults are more likely to have jobs with no health benefits, or to work for an employer who contributes little or nothing toward the premium when benefits are offered.

"These twentysomethings make triage decisions about which necessities are more important," says Ron Pollack, executive director for Families USA, a nonpartisan consumer health care advocacy group, and they gamble on their youth to keep them in good health.

But if you're without insurance, a single accident could wipe out your savings and put you in debt for years. Most hospitals require a signature before treating a patient, so your parents may be asked to authorize your care. If they do, they may be liable for your unpaid medical bills.

And your health could suffer even more than your pocketbook. If you're seriously injured while you're uninsured, federal law requires a hospital to treat you only until your condition is stable. After that, even if you need, say, surgery, expensive drugs or chemotherapy, the hospital may release you without further treatment.

No cheap choices. Without group coverage through your employer, there's no inexpensive way to buy health insurance. If you're paying on your own, you may have to skimp on certain types of coverage just to afford the premiums for major medical care. Still, that's better than having no protection if a catastrophe occurs.

If you are a recent grad, check to see if your parents' policy still covers you. Most insurance plans will cover adult children if they are full-time students or until they turn 23.

Even after that coverage expires, you may be eligible to extend it for up to 36 months under COBRA (the Consolidated Omnibus Budget Reconciliation Act). You must apply within 60 days of losing coverage, and--here's the kicker--you have to pick up the cost of the premium, along with a 2% administrative fee. But any preexisting conditions would be covered.

If you just need insurance for a limited time--say, before you start working or while you're between jobs--it may be more economical to buy a stopgap health plan, which lasts one to six months. A short-term plan with a $250 deductible generally costs $40 to $60 a month for a 23-year-old woman who doesn't smoke (compared with about $200 a month for an individual plan). You can visit any doctor you choose, and the insurer pays a percentage of your medical expenses. Fortis Health (800-211-1193) and Golden Rule (800-444-8990) are the leading providers of these plans.

Short-term insurance won't cover preexisting conditions or pregnancy, however, and costs can mount up if you get sick often. Golden Rule, for instance, requires that you pay a deductible for each injury or illness before it pays a cent. But it will continue to pay on a single claim for up to 60 days after the policy expires or up to a year for an illness or injury that required hospitalization. If you break your leg, for example, and need weeks of physical therapy after your coverage expires, Golden Rule will pay for it. One nice feature: You can apply for short-term coverage and have it by midnight the same day. Both companies will let you reapply for coverage once your first policy expires, but Fortis limits its offer to customers who did not file claims the first time around. Total coverage under either plan may not exceed 365 days.

Bite the bullet. If you're going to need insurance indefinitely, it makes sense to bite the bullet and buy an individual policy through an insurance agent or directly from an insurer. These days, most individual plans involve some form of managed care. A health maintenance organization that requires you to use its physicians will be cheaper than a preferred-provider organization (PPO) or point-of-service plan that lets you see a doctor outside the network if you pay an annual deductible, which can range between $100 and $5,000.

Premiums vary depending on where you live. But the higher your deductible, the lower your monthly premium. In Philadelphia, for instance, raising your annual deductible from $250 to $500 will save you as much as $324 a year on the premium for PPO coverage, says Arnold Katz, president-elect of the National Association of Health Insurance Advisers. In general, says Katz, a $500 deductible is the best deal. Beyond $1,000 there's less of a price break on the premium.

If you reject prescription-drug coverage--an expensive component of any insurance policy--you can shave another $30 to $50 a month off the premium, depending on where you live. But keep in mind that if you later develop a condition that requires medication, you can't go back and request coverage.

Don't cut corners on the maximum benefit, which is the total amount an insurer will pay over the life of the policy. Most agents recommend a lifetime cap of at least $1 million, which may sound like a lot but adds little to the cost of your premium.

Other strategies. You may join a group plan through a professional or alumni association that offers insurance. Group plans not only cover preexisting conditions but also offer more-comprehensive care, such as maternity and mental-health benefits, that an individual plan may not.

The cost, however, can be up to two to three times that of an individual plan for someone who's young and healthy. "A group plan has to accept everyone, and many charge the same rate whether you're 25 or 65," says Terry Balding, a financial planner and insurance agent in Sun Prairie, Wis.

If you're self-employed, consider opening a medical savings account, which combines high-deductible health insurance with a savings plan that works like an IRA. A single person can deposit up to 65% of the insurance deductible in an MSA each year and take a tax deduction for that amount. Money invested in the account grows tax-deferred and may be tapped to pay for out-of-pocket medical expenses (a withdrawal made for any other reason carries a 15% penalty). In addition, health insurance sold in conjunction with an MSA often costs less than if you bought the individual plan alone.

Does the thought of paying health-insurance premiums still make you ill? One sure cure is to follow the example of Jessica Cullen. To get health benefits, she looked for--and found--a new job with an employer that provides them.

Reporter: Courtney McGrath

Copyright 2000 The Kiplinger Washington Editors, Inc.

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