FINDING AFFORDABLE INSURANCE

Health Insurance on a Budget After Leaving Home

Whether you've just graduated from college or have been out of school for a couple years, you could be facing a health insurance dilemma. Chances are you were under your parents' health insurance policy while you were a full-time student. But most health plans will cut the apron strings once you reach age 22 to 25 — or even earlier if you aren't a full-time student. Or maybe you were under your college's health plan while in school and aren't eligible once you graduate.

If you don't have a job lined up right away, or if your new employer doesn't offer health benefits, you must decide which you can least afford: going with insurance or without it. Even though you might not want to spend the money on health insurance premiums, don't be tempted to go without at least some kind of health insurance to pay for hospital or doctor visits should you become sick or injured. All it takes is one car accident, an ankle broken shooting hoops, or an allergic reaction to a bee sting to saddle you with massive doctor and hospital bills for years to come if you don't have insurance.

Finding the Right Option

Even if you are on a tight budget or if you'd rather spend your money on fun stuff, you have a variety of options for health insurance that start for as little as $20 a month, from a bare-bones hospitalization plan to comprehensive HMO coverage that includes prescription medications and wellness care.

Option 1: Catastrophic Coverage

You might think that a cheap plan that covers only really severe injuries is the way to go, but a close look at such plans may scare you off.

"Catastrophic health insurance" policies, as they are known, typically come with a very high deductible (ranging anywhere from $500 to $15,000) and a high maximum benefit payment, such as $2 million. They are intended only to pay for major hospital and medical expenses, not routine visits to the doctor's office or trips to the emergency room to get stitched up. A catastrophic plan would cover things like treatment in an intensive-care unit for 10 days after an auto accident or complications from a pregnancy that land you in a hospital.

There is a niche market for such plans: People who are healthy but want to protect their assets or young people who aren't married and have no dependents. But a healthy 20-something who unexpectedly suffers a serious illness might not be able to afford them either because few 20 year-olds can afford a $5,000 deductible. You must decide what you're comfortable with paying if the worst happens.

Option 2: Short-Term Health Insurance

As its name implies, short-term health insurance lasts only one to six months. That makes it a potentially good option if you're between jobs or waiting for your employer-sponsored health plan to kick in.

Coverage is generally comparable to that of an HMO or similar plan and typically includes various hospital charges, office visits, diagnostic tests, and prescription drugs. Maternity costs are not covered, however. Unlike an HMO or PPO, though, a short-term plan is an indemnity plan, which means you have the freedom to go to any doctor; you're not confined to a network of doctors.

Most new graduates choose the $500 deductible, followed by the $250 deductible. The highest deductible is generally chosen only by older folks in an effort to offset their higher premiums.

The Downside of Short-Term Policies

But there are a few things to keep in mind.

One big consideration: At some companies, the deductible you pay is per injury or illness. That means you must meet the deductible all over again each time you are treated for a sinus infection or other illness.

Short-term policies also have certain strict eligibility requirements, although they will vary from insurer to insurer. If you have ever been denied health insurance, you won't be eligible for short-term insurance because a denial indicates you might have significant health problems. In addition, if you have a pre-existing condition (an illness or chronic condition you've had within the previous five years), it won't be covered under most short-term plans. That means if you've had leukemia, a stroke, or even allergies or asthma within the last five years, those illnesses won't be covered under your short-term policy. Pregnancy isn't covered either, although complications arising from pregnancy generally are.

In addition, you also won't be eligible if you are covered by any other plan, you work in a hazardous industry (such as construction), or you play in professional or collegiate sports, where the likelihood of injury increases.

And what happens if you bought a three-month policy only to find that the job you hoped to land — with health benefits — hasn't materialized? Don't count on automatically being able to renew your short-term policy, because it doesn't work that way. You have to go through the application process all over again and take out a new policy. If you had any illnesses or injuries during your previous policy period, those now become pre-existing and won't be eligible for coverage.

Shop around on your own or talk to an independent insurance agent to make sure you get a plan that's right for you.

Option 3: COBRA

COBRA is generally bought by people who are leaving a job and want to continue their current group health insurance, but it can also benefit young people who have relied on their parents' health plans.

Known formally as the Consolidated Omnibus Reconciliation Act, COBRA was designed to protect people who change or lose jobs and are threatened with the loss of their employee benefits plan. But it can also help young people who were previously covered under their parents' group health plan and then become ineligible for it because they reach the policy's age limit or are no longer full-time students. However, the monthly premiums are expensive: 102 percent of the full cost of the health plan (the extra 2 percent is an administrative fee).

While most people only qualify for 18 months of continued coverage under COBRA, those who were on their parents' policies can get COBRA for up to 36 months, according to the U.S. Department of Labor.

However, if you had health insurance through your college health plan, you will not be eligible for continuation under COBRA. That's because college plans for students are not considered an employee benefits plan.

Some Other Health Insurance Options:

• Alumni associations. Most college alumni associations offer various types of health insurance to graduates. Contact your university for information.
• Individual policy. Individual policies are generally much more expensive than group plans you'd buy through work, but if you have no other choice, it might be better than going without insurance altogether. You might have to pass certain health requirements to qualify. Shop around to get the best deal.
• Guaranteed issue policy. If you don't qualify for a group health plan, you might be eligible for an individual plan or, in some states, what is known as a "high-risk pool" that you are guaranteed by law to qualify for. However, you must meet certain qualifying conditions. These policies and the premiums can vary by state, and they are also more expensive than group plans. Check with your state insurance department for more information. (To find the contact information for your insurance department, select the state in which you live from the pull-down menu at the top of this page).
• Medical savings account (MSA). MSAs let people combine a high-deductible health policy (such as catastrophic coverage or short-term coverage) with a tax-sheltered savings account. The savings account pays for any routine medical expenses that aren't covered under the insurance policy, such as dental, vision, and mental health, while the insurance policy covers the large expenses as outlined in your policy, like hospitalization. Participants can contribute a certain percentage of their policy's deductible to the savings account each year. What's left in the savings account at year's end is yours to keep — and to deduct on your taxes. The catch, obviously, is that you have to put enough money into the savings account to cover your medical expenses. (You also have to be either self-employed or working for a company with fewer than 50 employees.)
• Medicaid. You must meet certain poverty-level income guidelines (or be disabled) to qualify for Medicaid. For most young people, however, this is not an attractive option.
• Local clinics. You can visit local clinics for free or low-cost medical care, but this won't protect you if you have to be hospitalized, and you might have to prove your low-income status.