I found myself nodding in agreement the entire time I was reading this Reuters article by Linda Stern (reminded me of an article Jay wrote in 2007). She’s opted to keep her individual health insurance policy instead of taking the group plan that her employer offers, and she’s got some excellent, well-thought-out reasons for doing so. I especially like her logic as far as the work flexibility that the individual plan gives her. She mentions that she’s had her individual policy for a decade and that she’s in her late 50s. She still has several years until she’ll be eligible for Medicare at 65. She doesn’t mention her specific medical history, but most people tend to have more medical issues by their late 50s than they had in their late 40s. That’s why health insurance gets more expensive as we age.
For the average person who has had an individual policy for a decade and is late 50s-ish, keeping that individual policy (even though a group plan may become available) might be the ticket to being able to have some flexibility in terms of when to retire. The group plan is guaranteed issue – health conditions won’t be a barrier to getting coverage. But the group plan is also tied to the current employer, and the policy will only be available for a maximum of 18 months after you leave that job (via COBRA). For people who have several years to go before reaching 65 and Medicare eligibility, an individual policy allows them the option of leaving their job a few years early and still being able to have health insurance in place until they can switch to Medicare. And as Linda points out, getting back into the individual market in one’s early 60s isn’t as easy as it was in one’s 40s. Some people remain healthy for decades and have no problem qualifying for an individual policy (without underwriting rate-ups) in their 60s. But they are the exception to the rule; most people have at least one or two pre-existing conditions by age 60.
If a person has had a group policy for years, this is going to be a moot point. But a person who has had an individual policy in place for years and then becomes eligible for a group policy might want to think twice before switching. Consider the long-term ramifications of both options. What are your plans for future employment? Is the group policy being offered by an employer you’d like to stay with for many years? Or do you see your current job as a stepping stone towards establishing your own business or retiring early?
Starting in 2014, the ACA calls for all individual policies to be guaranteed issue, which would eliminate one of the major obstacles for people considering leaving a job (that offers group health insurance) prior to age 65. But a lot can happen in two years, and the ACA still has to survive a supreme court showdown, probably sometime next year. We also have a major election cycle next year, with a full year of legislative action in 2013 after the 2012 election. Nobody really knows what health care reform will look like two years from now.
Another great point Linda makes is regarding Health Savings Accounts. Her employer doesn’t offer an HSA-qualified plan. Her individual policy is HSA-qualified and allows her to set aside tax-free savings to cover medical expenses. A huge bonus to HSAs is that the money can be used like a traditional IRA for income in retirement if it’s not needed for medical expenses. People who have maxxed out their other options for pre-tax retirement savings might benefit greatly from having an HSA-qualified high deductible health insurance policy. A lot more employers are offering HSA-qualified plans as an option for employees. If yours isn’t, you might want to ask them to consider it. And if that’s not a possibility, an individual policy might be a good option.
Of course the flip side to that is to remember to consider your particular situation and look at all the options before making a decision. Just because HSA-qualified high deductible plans are often touted as great money-savers doesn’t mean that they are always the best or least expensive option. Our family has had an HSA-qualified policy with Humana for several years. But a few months ago we switched to a Core Share policy from Anthem Blue Cross Blue Shield. Our HSA-qualified policy was going up to $570/month for our family, and the BCBS policy was $311. The deductible + coinsurance on the new policy is the same as the deductible on our old policy, although there’s a potential for two people to have to meet the out-of-pocket expenses on the new plan (not likely to happen unless we’re in an accident. In that case, we have an accident supplement that would cover most of the deductible and coinsurance).
I normally like to explain more details – which there are many – when comparing insurance policies, but for this article we’ll leave it at that.
Although we liked being able to set aside money in the HSA, we couldn’t justify an additional $259/month in premiums for the health insurance policy. And since we haven’t used most of the money we put into the HSA over the last several years, we still have it there to use in the future for medical expenses, even though we no longer have an HSA-qualified health insurance policy (we can’t contribute to the HSA anymore, but we can withdraw money at any time if we have qualified medical expenses).
Linda’s article is an excellent reminder about the importance of looking at the specifics of your own situation – including long term issues that might outweigh short-term benefits – rather than following conventional wisdom or doing what everyone else is doing.