Should You Buy Private Health Insurance?

Eliza Greene has done the unthinkable. The 50-year-old retired CPA, who lives in Oakland, Calif., recently opted out of her husband's employer-sponsored health-insurance plan. At $875 a month for family coverage, it was simply too expensive, she decided. She was determined to find something more affordable. And she did.

Greene logged onto eHealthinsurance.com, an Internet-based insurance broker, and found comprehensive medical insurance for herself and her two sons for just $133 a month. Her husband, meanwhile, decided to stay on his law firm's plan, since he has a preexisting condition, and since he pays just $250 a month. In total, the family now saves nearly $500 a month on health insurance premiums.

Did Greene have to endure a lot of hassle to make this happen? Not at all, she says. By buying a plan with the same insurer her husband's employer uses, she didn't even have to switch doctors. "It has been fabulous," she says.

Until recently, no one with access to group health insurance would have dreamed of opting out and buying coverage on the individual market. Prices were simply too high. Yet as health-care expenses soar and companies shift an increasing percentage of those costs onto their workers, individual coverage is quickly becoming a viable alternative.

According to a recent Kaiser Family Foundation report, employer-sponsored health-care costs rose 11.2% in 2004, the fourth consecutive year of double-digit growth. Employers pay, on average, $3,695 a year for single-person coverage and $9,950 for family coverage. (That rises to $10,217 for the more popular PPO coverage.) They pass 16% of that premium, on average, to individual employees, and 28% of it to families. Smaller employers often charge their employees significantly more, in some cases as much as 100%. And the situation is only expected to get worse. Some 52% of large employers say they are "very likely" to increase employee contributions next year, according to the Kaiser report.

But before you dump your employer's plan in favor of an individual one, make sure you have a clear understanding of what you might gain and lose. Some people might decide that a generous health plan is worth the price. Others might decide that the extra money could be better spent elsewhere. Consider the following pros and cons of going it alone.

The Pros

Save Money

In most states, it's possible for healthy families to find competitively priced coverage on the open market. According to a recent eHealthinsurance.com survey, the average premium for a single person in California, for example, is just $147 a month, while family coverage costs $261 a month. Plenty of employers charge their workers more than that.

And if you're looking for a stopgap while you're between jobs, you could buy even cheaper coverage. These plans cost on average just $60 a month for a single person and $149 a month for a family, according to eHealthinsurance.com.

Pay for What You Need

When you choose an employer's health-insurance plan, you don't have many options. You might be able to choose between a few different plans, but the employer sets the prices and the coverage amounts. When you buy health insurance on the private market, however, you decide which services are worth paying for and which ones aren't. By choosing a plan with a higher deductible, or one that doesn't cover, say, chiropractic care, you can save yourself hundreds of dollars a month, says Robert Hurley, vice president of customer care for eHealthinsurance.com.

It's Yours No Matter Where You Work

Plenty of Americans stick it out at dead-end jobs just to keep their health benefits. If you buy coverage through a private health plan, you won't have this worry. By law a health insurer can't drop you, provided you pay your premiums in a timely fashion. When you leave an employer, on the other hand, you say goodbye to its health insurance. If you're fortunate enough to work for a company with at least 20 employees, you do have the option under COBRA to keep those benefits for 18 months. But it'll likely cost you a lot more, since you'll probably have to cover the entire cost of the premium.

The Cons

Less Comprehensive

Dollar for dollar, employer plans provide considerably more coverage than individual plans. "When you go into the individual market, you'll [likely] buy a whole lot less coverage, even if you're paying the same amount of money," says Karen Pollitz, project director of the Georgetown University Health Policy Institute. Why the disparity? Pollitz explains that with an individual policy, a bigger percentage of the premium goes to cover overhead, such as marketing and paying claims, than to health services.

Strict Underwriting Standards

If you have a preexisting condition, you might be out of luck. While a group plan must insure all employees and family members, individual plans can — and do — reject applicants with less healthy profiles. They can also offer coverage with sky-high premiums that exclude certain illnesses. That's why some families, such as the Greenes, decide to leave a sick family member on the group plan and to find alternate coverage for the other healthy members.

Expect Rate Increases

In most states, private health-insurance plans are what the industry calls "rated," says Georgetown's Pollitz. This means premiums rise with age. So a person who buys coverage at age 50 might find it prohibitively expensive by, say, 55. Some people get around this by changing plans from time to time, since new rates tend to be lower than renewals. But as people age, it becomes more difficult to jump around and individual policies get pricier.

One final word of advice: If you do decide to forego your employer's plan, make sure to secure an individual policy first. The last thing you want to do is opt out of a group plan and then find you can't get comprehensive coverage on your own. Oftentimes, an employer won't let you back into its group plan until the following year's open-enrollment season.

Source: SmartMoney 09-21-2004