Lane 3

Taking the Leap: What about my Health Insurance?

The January 2008 Consumer Reports magazine had a article on the challenges some people have finding health insurance (On their own, page 22). In it there is a story of a 55 year old man who had a liver transplant 10 years ago. He decided to leave his corporate job to start a new business, but was surprised when insurers declined to cover his blood tests and anti-rejection drugs or when they rejected his application altogether.

If you are going to take The Leap please do some homework on the front end. Understand that there are two major types of health insurance: group (employer sponsored plans) and individual.

Group coverage has a number of advantages: (i) insurers are required by law to accept a small employer group no matter what pre-existing conditions exist, (ii) an insurer must credit prior insurance coverage against its pre-existing condition provision, and (iii) if a plan participant loses coverage (termination of employment, for example) he can take the group coverage with him for a period of time (COBRA and/or “state continuation” coverage).

In order to be eligible for group insurance you must be an active employee or on COBRA/state continuation with your former employer. Individual policies are an alternative for some people, but are not a universal solution. An “individual conversion” policy is an unattractive solution if it is available at all. Here are some options to consider if you decide to take The Leap:

1. The group option. If you have at least two employees you can establish a group plan under your new start-up. As an alternative, you could take your former employer’s COBRA coverage or state continuation coverage until you can get up to two employees and start a group plan of your own. COBRA generally may last up to 18 months. The maximum period for state continuation varies state to state; here in Georgia it lasts only three months.

2. The individual option. You will need to think about applying for an individual policy if (i) your new venture does not have two employees and/or you are going to exceed the maximum duration of COBRA or state continuation, or (ii) you don’t have any significant health conditions and your former employer’s COBRA/state continuation coverage is relatively expensive.

3. The “individual conversion” option. Things are not good if you are at this point – your COBRA/state continuation has expired and you have been declined for an individual policy. Some group policies may allow you to “convert” the group coverage to an individual policy. Be forewarned, these policies are generally a state-mandated benefit designed as a safety net for uninsurable individuals. Therefore, coverage is minimal and premiums are high. Before jumping ship, review your current insurance policy to verify that individual conversion is even available.

4. The “pull-the-plug” option. Hopefully not, but you may get to the point where the lack of available benefits forces you back into corporate world.

So should you be like the gentleman in the Consumer Reports article who learns the realities of health insurance only after having left a good job with benefits? Obviously not! I hope this helps as you move forward with your plans…