13
How to Shop for Benefits
I have to admit that of all the topics I talk with people about when they are pondering quitting their job to start a business, securing health benefits is the one that makes me want to poke myself in the eye with a pencil. Then I have to check my self-employed insurance policy to make sure that I am covered for vision care.
I think there are a number of reasons why it is such a difficult topic:
• There are horror stories from the media that tell of people losing everything in a medical emergency because of lack of insurance.
• There is an overwhelming amount of jargon and terms related to different types of insurance plans.
• The consequences of choosing the wrong plan feel very risky.
This chapter is definitely geared to U.S. readers since each country of the world has very different health care systems and structures.
Choose Your Approach to Researching Benefits
Like a lot of other topics discussed in this book, fear plays a big part in thinking about insurance. And like fear in other areas (Will I live in a van down by the river? Will my family and friends support me when I tell them I want to start a business?), the best way to deal with it is to deconstruct it in a straightforward and organized way.
Depending on your learning style and approach to research, I would imagine that you would fall into one of three main categories:
1. You are very excited to research insurance plans in great detail, create spreadsheets, and weigh a lot of the analysis yourself.
2. The whole prospect of researching benefits feels completely unpleasant and overwhelming (read: pencil in eye), and you would love it if someone just took care of it for you.
3. Somewhere in between the two extremes: you would like to be an active participant in the process, but would like expert help to make sure you make solid decisions.
The good news is that there are resources and support for any one of these approaches.
One of the helpful sources I used for this chapter is a book called Get a Good Deal on Your Health Insurance Without Getting Ripped Off, written by Jonathan Pletzke. Pletzke explains:
I did not set out to write a book about health insurance. I was working on a different book which included a chapter about how to get your own health insurance. Once I dug in and started my research, I found that there was much more material than could fit in one chapter. While some of the materials can be found elsewhere, there is some very unique information that can only be found here: which includes a technique to compare all health plans “apples to apples,” how to avoid being ripped off, and a simple yet comprehensive way to view all of the health plan information.
1I agree with Jonathan. There is far too much information related to securing health insurance to cover in one chapter of a book. So my short answer to each of the dilemmas would be:
1. If you have a preference for doing it all yourself, get Jonathan’s book, read everything, do all the exercises, and get as much data as you can online. Make a decision, and then validate it with an opinion you trust from an expert broker.
2. If you just want it done, get a great broker and have him or her hold your hand through the whole process.
3. If you want to learn a bit and get it done, get Jonathan’s book, read the relevant chapters, and get a good broker to help you choose a plan.
Or you could opt for a fourth, magic solution.
Magic Solution
Become a Canadian citizen.
Seems our friends to the north have a lot of things figured out when it comes to health care. My Canuck friend Tina Forsyth shared: “In Canada all our ‘standard’ health expenses are paid for—any doctors visits, surgeries, etc. So there are no worries around being able to pay for that as it is covered by our provincial health care plans.”
Just so I wouldn’t feel totally jealous, she added:
What we don’t have covered are “extras” . . . dentist visits, drug prescriptions, getting glasses, etc. If you are employed those are the kind of benefits that your company may give you, so you don’t have to pay $200 to a dentist to get your teeth cleaned. The other thing normally covered with employee benefits that we have to pay for if we work for ourselves is life and disability insurance.
I share this scenario to give you a little bit of perspective and so you know that despite having excellent plans (if you are Canadian) it is just one of many factors to juggle when starting a business.
The important thing to remember is you have options, and there is a process.
So let’s get to it.
How to Evaluate Self-funded Health Insurance
1. Define your ideal level of health, life insurance, and retirement benefits to ensure that you and your family are protected against risk.
2. Identify any personal issues that could affect your ability to get benefits (such as preexisting conditions).
3. Identify key partners or online resources that will help you in creating your plan.
4. Create a complete self-funded benefits plan that you can evaluate against your current corporate package.
5. Make a decision and sign on the dotted line.
Some Basics
The premise of health insurance is the same as for any other kind of insurance: fees vary depending on the amount of financial risk you are willing to assume versus the amount of risk the insurance company is willing to assume. Risk to you is a higher deductible. If you take on more risk, you will pay less. If you pay less, you will need to put money aside to offset expenses.
If you are smart about how you plan and weigh your risks, and adjust your savings plan accordingly, you can secure health insurance, even with preexisting conditions.
Benefits expert Paula Peck, who contributed to this chapter, had one of the ultimate “black marks” on her medical history: a diagnosis of cancer at age thirty-five, with (covered) medical bills that totaled upward of $650,000 after her treatment.
Yet with careful evaluation, shopping, and financial planning, when she became self-employed, she obtained good coverage at a reasonable cost.
Health Care Lingo
As you go through this chapter and see all kinds of terms thrown around, you may need a bit of clarification. The following is a glossary of health care lingo, written by Jonathan Pletzke for a series of articles about health insurance on StartupNation.
Navigating the health-insurance maze is a little easier if you understand the terminology. Here’s a guide to most of the important terms you’ll need to know as a small business owner:
• Blue Cross and Blue Shield Association: The national trade organization that links 38 independent regional health insurance companies in the United States. Some of the BCBS companies are not-for-profit. The association operates through a series of administratively independent franchises offering insurance plans within defined regions.
• Catastrophic health insurance: It protects you against the high cost of treating severe injury or long illness. These policies usually cover some, if not all, of your medical expenses above the maximum liability limit of another insurance policy.
• Co-pay: This is your out-of-pocket cost per doctor visit under the terms of your policy, often $5 to $25 for each visit.
• Co-insurance: Ever hear of an 80/20 or 50/50 policy? It’s a policy with a “co-insurance” provision, and is typically less expensive than other policies. Essentially, you pay an annual deductible, then your insurance company pays a percentage of your expenses after that (e.g. 80 percent in an 80/20 policy). You pay the difference (20 percent in an 80/20 policy). This type of policy also has a lifetime maximum, which limits the amount the insurance company pays toward health-care expenses in your lifetime.
• Deductible: The amount you agree to pay out-of-pocket toward health care expenses each year. It’s usually true that a higher deductible means a lower insurance premium.
• Drug coverage: Most policies have some prescription drug coverage, but don’t assume it’s there. Ask about it, and be sure you understand how the coverage works (e.g. Is there a co-pay, does it cover brand-name drugs, etc.).
• Evidence of insurability: Proof of a person’s physical condition that affects acceptability for insurance or a health-care contract.
• First-dollar coverage: Insurance with no “front-end” deductible. Your coverage begins immediately for any covered benefit. It’s common for many plans to provide first-dollar coverage for preventive care such as annual physical exams and immunization for children.
• Guaranteed renewability: Be sure that your health insurance cannot be cancelled after you become sick. You need “guaranteed renewability” in your policy.
• Health Maintenance Organization (HMO): A plan that covers visits to doctors in a network defined by the HMO. If you need to see a specialist or doctor outside of the network, you need a referral or approval from the HMO.
• High-risk pools: Thirty states operate these groups for the uninsurable. They guarantee to issue a health insurance plan, although at a higher cost.
• HIPAA: Primarily affecting the small-group and individual markets, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) was designed to allow portability of health insurance between jobs. It also required the passage of a federal law to protect personally identifiable health information.
• Medical underwriting: Most individual policies are written against the specific medical status of an insured individual, while group policies (usually 10 or more employees) typically are not. Under this type of coverage, someone with a pre-existing condition or illness may not get coverage, or their coverage may be more expensive.
• Out-of-pocket expenses: Your portion of health-care costs that are not reimbursed by the insurer, including deductibles, co-payments and co- insurance.
• Preferred Provider Organization (PPO): A plan that covers visits to doctors in a network. If you go to a doctor outside the network, a smaller portion of your expenses are covered. The advantage of a PPO is the ability to choose doctors without referrals or approval, which isn’t the case with an HMO.
• Pre-existing conditions: For insurance purposes, a pre-existing condition exclusion must relate to a condition for which medical advice, diagnosis, care or treatment was recommended or received during the six-month period before an individual’s enrollment in a new policy plan.
• Portability: A requirement that health plans provide you continuous coverage without waiting periods if you move from one plan to another. Portability requirements vary by state. In some, you get no credit for prior coverage and must wait, uninsured, during the entire pre-existing condition exclusion period.
• Report card: An accounting of the quality of services rendered by comparable providers over time. You can use report cards to choose a health plan or doctor, or check up on the overall effectiveness of your current plan or provider.
• Risk pool: A legislatively created program that groups together individuals—sometimes including entrepreneurs—who can’t get coverage in the private sector.
•
Waiting periods: The time an individual must wait to become eligible for benefits for a specific condition after overall coverage has begun.
2
Understanding Current Coverage
Define Your Needs
Developing an understanding of your personal health and life insurance needs is an ongoing process. At different times in our lives we have different needs and are exposed to different risk factors, therefore our insurance needs change.
To start you need to have a full understanding of your current coverage and the costs. A common misconception is that the corporate benefit plan you enjoy only costs what you pay through payroll deduction plus a small corporate contribution. The fact is costs are often much higher for the corporation, which will impact you when you try to cover the cost yourself.
To understand your current costs, take an inventory of your current benefits and ask your employer for the actual costs.
Out-of-Pocket Expenses
Next you need to understand the cost of using the insurance.
• What are the co-payments for doctor visits, emergency care, hospital care, pharmacy, medical equipment, tests, etc.? What are the coinsurance amounts?
• Once you know the monthly cost of your health insurance coverage you need to evaluate how you use your insurance:
How often do you go to the doctor?
Are you undergoing treatment for a medical condition?
How often do you go to the dentist?
Do you have maintenance prescriptions?
Do you need glasses/contacts?
• Pharmacy costs are probably the most volatile areas of concern. If your current coverage has a co-pay amount or a coinsurance amount it is critical to understand the true cost of the drug that you may be using. The difference between your current co-payments and the actual cost of drugs may prove to be rather shocking. The site
www.pharmacychecker.com is a good place to at least get an idea of the cost. (It may not provide exact costs, but will give you an average price to work with.)
What Are Your Risk Factors?
Taking a personal medical inventory is critical to deciding which type of medical plan will best meet your needs. During this process you should evaluate yourself and your dependents.
Aside from a diagnosed condition, if you and your dependents are in relatively good medical condition then your medical risk should be low. If currently you or one of your dependents has an ongoing diagnosed condition then your medical cost risk could be very high.
It is very important when doing a medical inventory to understand your family history. For instance, if every aunt and uncle on one side of your family has had cardiac problems, then you are prone to have that condition.
Your medical history and your family medical history will also affect the pricing of any medical insurance you attempt to purchase.
Great Free Resource
If you are unsure what your health risks are, sign up for a personal health assessment at Health A-to-Z (
healthatoz.com).
At this point you should have a good idea of how you currently utilize your health care coverage, and you should be able to identify what kind of medical risk you have and how much of that risk you can afford to pay for yourself and how much you may need to purchase insurance to cover.
You now need to dive in and evaluate all the different insurance plans available to you. This is a time when I highly recommend calling a professional broker.
Get a Broker
A health insurance broker, or “life agent” as they are sometimes called, is a critical piece of the health insurance equation. Even if you do most of the research yourself, it is smart to get the perspective of an experienced broker familiar with the nuances of providers and benefit plans. They might know of a lot more plans and options than you can find researching on your own, so you may want to contact them early in the process.
The job of a broker is to evaluate your needs, understand your tolerance for risk, and shop around for the best possible plan at the most reasonable cost. The insurance companies pay them, so their services won’t cost you a thing.
What to Look For in a Broker
• Track record. Check to make sure the person has good experience in the field, and all up-to-date certifications and licenses.
• Geographic expertise. Each area in the United States is very different in laws, regulations, providers, and plans. So choose someone who understands the ins and outs of your particular geographic region.
• Good references. It is a great idea to ask for at least three references of people in your similar situation that they have helped. Ask about not only their results but the process of working with the broker. Were they easy to work with? Reliable, pleasant?
• Broad perspective. The broker who helped a blog reader secure insurance knew not only about individual plans, but also about how to choose the right organizational structure that might qualify you to start your own group plan at a much-reduced cost.
What Are the Options?
As you go through the process of identifying plans that may work for you it is important to ensure that your current providers are included in those plans. If you choose a plan that does not include doctors and providers that you are comfortable with, you are setting yourself up to be dissatisfied with the plan.
Do you have a primary care physician? Do you have specialists that you see on a regular basis? Is there a particular hospital that you prefer using? If you have dependents, who are the physicians that they regularly see?
For dental coverage, who is your dentist? And if you have dependents undergoing orthodontia care, who is their provider?
Make sure you share these preferences with your broker.
Types of Coverage to Evaluate
If you are happy with the coverage in your corporate plan, you can try to duplicate it on the outside, at the most reasonable cost possible. But if you are looking to expand and/or change coverage, you may want to evaluate the following categories, from Jonathan Pletzke’s Get a Good Deal on Your Health Insurance:
• Wellness/Preventative
• Limited/Unlimited Lifetime or Annual Benefits
• Laboratory Work
• Pregnancy/Maternity
• Prescriptions
• Dental
• Vision
• Mental Health and Substance Abuse
• Alternative Medicine/Chiropractic/Acupuncture
• Accident and Life Add-ons
• International Coverage
• Home Health Care
• In Network or Out of Network Coverage
Some Special Considerations for the Self-employed
As you will see if you visit some Web sites and/or read Jonathan Pletzke’s book, there is a lot of detail when it comes to insurance plans. And since each of you is different, it would be impossible to cover it all without boring you to tears.
But there are a few things I want to call your attention to when you are considering self-employment, just so you don’t secure full-coverage medical and dental insurance and think you are done.
DENTAL AND VISION
For the most part dental and vision plans have annual limits per person. Dental plans will pay anywhere from $1000 to $3000 per person per year. Many vision plans pay around $500 per year including exams and glasses.
Depending upon your personal needs it may be cost effective to simply pay for these services without getting the coverage. However, one advantage of having a plan is you can take advantage of the contracted rate of the insurance company if you have the coverage.
This is an area where you need to examine your current usage and needs. Once again if you are considering self-funding this coverage, discuss it with your provider as they may be willing to give you a cut rate or the same rate as the insurance company.
One more possibility is that many individual medical plans will sell you dental, life, and vision coverage for a small fee.
SHORT- AND LONG-TERM DISABILITY
What would happen if you became ill or injured and were unable to work for an extended period of time? If you followed the recommendations in chapter 9, you may be saving from six to twelve months’ worth of salary in an emergency fund.
But this money might not be enough to sustain you in the event of a health situation that would lay you up for an extended period of time. For this reason, it is good to consider a short- and/or long-term disability insurance plan.
Think about how much money you would need to get by if you were incapacitated, and check premiums with your broker.
LIFE INSURANCE
In chapter 9, I mentioned that many people are inadequately funded in life insurance, only paying for enough coverage to cover one or two years of their salary. Some people think about life insurance as an inheritance, a lump sum to leave to their kids.
Benefits specialist Paula Peck disagrees. She says: “The purpose of life insurance is to consider if your income is lost, how would your survivors be able to sustain the house? How would they pay off debts, and manage with the monthly expenses?”
If one spouse was not working and was taking care of the children, would he have to go to work and pay extra for child care?
Once you get an entire picture of your financial needs based on how you are choosing to fund your benefits, talk with your financial adviser to evaluate the appropriate amount of life insurance necessary to take care of your beneficiaries.
HEALTH SAVINGS PLAN (HSP)
An excellent idea for the self-employed who opt for high-deductible plans is to establish a Health Savings Plan (HSP). This can be a savings or money market account that you can contribute to tax-free, and utilize for any health-related expense. The fund can grow until you are sixty-five years old. It can be used for any health-related expense, including medical, dental, or vision care.
Think about this for a moment. Instead of paying extremely high premiums each month for full coverage and low co-payments, you can raise your deductible limits and put the money you would have paid to the insurance company in your HSP. If you don’t have any health issues, your account grows over time. And if you need to use it, you will have the money set aside and available.
Your broker will be able to help you determine exactly what kind of plan you are eligible for, as there are some restrictions based on the type of coverage you have.
ASSOCIATIONS CAN OFFER INSURANCE OPTIONS
You may not realize that some of the professional associations you belong to can offer health insurance at better rates than you can secure on your own. These can be large organizations or small trade associations. Here are just a few examples. There are a lot more:
American Association of Retired Persons (AARP)
American Bar Association (ABA)
National Association of Self-Employed (NASE)
National Freelancers Union
Writer’s Guild
WHATEVER YOU DO, DO NOT GO MORE THAN SIXTY DAYS
WITHOUT COVERAGE
In my research for this chapter, I learned that the worst thing you can do once you sever employment is to let health insurance coverage lapse for more than sixty days. When you do so, you lose your HIPAA rights to insurance coverage, which means your worst nightmare will come true: you will lose your rights to guaranteed health insurance. Although the guaranteed plan may be very expensive, it is guaranteed, so even if you have preexisting conditions, you can get health coverage.
So don’t let it happen.
Fill out your COBRA paperwork and turn it in to your benefits administrator right away. By doing so, it does not mean you are obligated to pay for the COBRA program if you find a better and cheaper option, it just means that you lock in your ability to access it if necessary. If you go longer than sixty days without coverage, this may have a significant negative impact on your ability to secure coverage in the future.
If you blow the deadline, it cannot be fixed by a bit of sweet talk. It doesn’t matter if you were out of the country, knocked out by the flu, or abducted by aliens.
No signed form by the end of sixty days, no guarantee of insurance. So just do it.
Making the Decision
It is a myth that you cannot buy health coverage any cheaper than you will receive from your employer. When your employer purchases health care coverage it is based upon the experience of the entire group, so if everyone in your company is in perfect health and never uses their medical coverage it could be very cheap. However, generally speaking probably at least 5 to 10 percent of your fellow employees have serious health conditions that drive the cost of coverage up every year. When you purchase an individual plan, your health and your family’s health are the only underwriting factors.
The key will be to develop a very clear understanding of your needs, balance the premium versus deductible costs, and set up savings vehicles for whatever risk you choose to take on yourself.
If you are a spreadsheet ninja, you can gather all of your facts and figures, research and compare plans, and decide on your best option.
As for me, I made a beeline to a broker the second I quit my job. It simplifies so much, and they often have computer programs predesigned to handle all the different factors you are evaluating.
The Gigantic Disclaimer
I hope you have seen that while there is a clear process for determining what health insurance coverage you need and knowing how to secure it, you should view all sources of information—anecdotal, online, or in a book (like this one)—as just sources of information. As with anything important:
• Get more than one expert opinion.
• Read the fine print before you sign on the dotted line.
• Keep up with changes in policies.
I agree with the disclaimer in Jonathan Pletzke’s book, which also applies to this chapter:
This book is written for informational and educational purposes. Neither the author nor the publisher of this book is in the business of providing legal, financial, or other professional services or advice. As such, neither the author nor the publisher can be liable for your actions due to reading this book. You should contact competent professional advisors before making decisions about what is best for you. The author and publisher specifically disclaim any personal liability, loss or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein. Any similarity of fictional persons in this book to actual persons living or dead is purely coincidental.
3See, it is even scary to offer advice about benefits for those who are very knowledgeable. So do the sensible thing, educate yourself, and then check with the professionals.
Remember the basic rule of life (and especially Internet marketing): if it sounds too good to be true, it probably is.
Resources
• NASE (National Association for the Self-Employed):
www.nase.org • Subject matter expert used for this chapter: Paula Peck, benefits consultant—paula.peck@sbcglobal.net