Photo by Fabienne D.

Already a major challenge for career changers — especially the self-employed and other small business owners — health care just became even more of a wildcard with the recent passage of the new reform bill.  The news is not all bad, just new, and that means it may take a bit of extra effort to understand what it all means.   In her article The Good and Bad in Health Care Reform for Small Businesses, USA Today’s Rhonda Abrams breaks it down for us.

Image by Ltshears

There have been several modifications to the COBRA premium subsidy program since it was enacted as part of the stimulus package about a year ago, so a person could certainly be forgiven for not being 100% clear about his or her eligibility.  Yet there are so many dollars at stake, it’s critically important for those who might qualify to have their facts straight.  No doubt in response to a barrage of questions, the Department of Labor has recently put together this new FAQ to clarify all the ifs, ands, and buts. 

Many thanks to my Garrett Planning Network colleague Deidra Fulton of Plano, TX-based Fulton Financial Planning, Inc., for calling this to my attention!

In the not-too-distant past, this was hardly even an issue because 1) employer-sponsored life insurance could usually be converted to a policy you could take with you, and 2) employment gaps were typically few, far between, and relatively short.  Unless you’ve been living under a rock, you know that the latter is no longer true.  

But for the first time, at the Dynamic Networking Group meeting, I heard from a group member about an employer-sponsored policy that was not portable.   Theoretically, this was always possible, that such policies were out there;  I’d just never run across one.  Now I don’t mean to attach too much significance to one instance of this, or suggest that it’s a trend.  However, in thinking about the damage that could be done to a family’s security by overlooking this, I’m adding it to my checklist of items permanent employees will want to start paying more attention to in our new, pink slip-happy world, and I recommend you do the same.

I think this quote sums up the experience perfectly.

Who dares to teach must never cease to learn. — John Cotton Dana

Despite the bad weather, turkey hangover, and Pats/Saints game (so much for that!), group members showed up energized and full of great ideas to share, resulting in a lively, informative discussion for everyone attending.   I enjoyed seeing familiar faces and meeting new, but I also picked up several valuable pieces of information likely to be of interest to readers of the blog.

First up… an issue on everyone’s minds these days: health insurance or, more specifically for this crowd, the COBRA subsidy enacted as part of this year’s stimulus package. One attendee in particular has been following this subject very closely (via useful Web sites nelp.org and unemployedworkers.org), and he graciously shared with us what he’s learned about the details of the program.

• There is an expiration date on the program, and it is rapidly approaching: December 31, 2009. However, it’s NOT that benefits to anyone who has been receiving them stop on that date; once benefits have begun, they can last up to 9 months. Rather, the deadline has to do with establishing initial eligibility for the program, i.e. no one terminated from employment after December 31 is eligible to participate in the program (details)… as it now stands.
• Having said that, there is talk in Congress of extending this program, but nothing’s definite yet.  (*** 1/2/10 Update — Good news!  The COBRA Subsidy has been extended.  ***)

In addition to health insurance, I also came away from the talk with some fresh points on life insurance, pension plans, and unemployment benefits for the self-employed.  Look for those to show up on the blog over the next few posts.

p.s. A big shout-out also goes to Todd Fothergill, Managing Director of Strategies for College, Inc. college planning services, for loaning us a projector!

Thinking about retiring early? As part of the decision, you’ve got to calculate whether you’ll have enough retirement income to meet your needs. While adding up the costs of customary living expenses, utilities, and an occasional vacation, don’t forget to include another important retirement expense: health insurance.

We’re living longer and health-care costs are surging. Unless you qualify for Medicare (you must be at least 65 for coverage) or you’re very wealthy, you probably can’t afford to go without health insurance. And, unless you’re lucky, you probably can’t rely on your former employer for coverage, since few companies offer retiree health-care benefits. Underestimating the impact of medical costs could significantly hamper your plans for a comfortable retirement.

Check out your working spouse’s insurance to see if you can be added to his or her policy. But adding you as an insured likely will increase the premium cost to your spouse.

Ask your employer if it’s possible to remain covered under its group plan. Usually, plans don’t extend coverage beyond active employees and their dependents. But, it’s sometimes possible to remain covered, though you’ll probably have to reimburse your employer for the cost to keep you on the plan.

COBRA may be another option allowing you to remain covered under your employer’s group health plan. If your retirement causes you to lose your health insurance, you can remain on your employer’s plan for a maximum of 18 months (with some exceptions). You’ll have to pay the entire premium amount, plus a possible 2% administrative fee. And keep in mind that employers with fewer than 20 employees don’t have to offer COBRA, so it might not be available.

Shop for individual coverage

If you’re going to buy an individual health insurance policy, you may find the premium cost to be quite steep, especially if you’re also insuring your spouse and dependents. And there’s no guarantee you’ll even receive coverage. In most states, insurance companies can examine your health history and medical records (called underwriting) in order to determine whether you qualify for insurance and at what cost.

Saving a few premium pennies

Here are a few suggestions that might help you lower the cost of individual health insurance. Group rates are usually less expensive, so look for health insurance plans offered by trade associations or churches. Be aware that while coverage might cost less, you may have to pay a membership or association fee to the group offering the coverage. Also, the plan may have high deductibles and co-payments, and the benefits and options, including your choice of physicians and medical facilities, may be limited.

 Also, in states that allow underwriting (Texas is one of them), the cost of an individual policy of health insurance is based, in part, on your age and health. A preexisting medical condition could affect your premium or even cause you to be denied coverage. So before applying for new health insurance, consider getting in better shape, especially if you think you’re a little overweight. Smoking is also a ticket to a higher premium, so quit if you can. Since the insurance company will examine your medical records, review them first with your doctor to remove any inaccuracies, and to clarify the reasons for examinations or treatments.

Finally, if you’re denied coverage because of poor health, don’t despair; you may still be able to get insurance if your state sponsors a high risk pool (Texas does).  However, this is truly the option of last resort because of the high costs.  As an example, pricing for a 60-year-old non-smoking male in some of the NE Tarrant County zip codes is $894 per month as August 1 for a $2,500 deductible plan.

(Texas resident?  These posts on Jean’s blog have more information specifically relevant for you.)

But I do have an important health care-related message for you and your financial plan:  If you’ve been putting off going to the doctor for something, go do it now before your coverage gets any sparser and it ends up costing you more.  When I talk about coverage getting sparser, I’m not talking in the global sense, but on a “per individual”/”per family”, near term basis.  And I bring this up here and now because both year-end and, unfortunately, career change can be a trigger for this.  

True, even people keeping the exact same job pretty much expect to see fewer benefits at higher cost each year when open enrollment season rolls around.  But the risk of reduced coverage is greater still when changing careers.  The obvious situation is a move from an industry that has comprehensive benefits to one  that doesn’t.   Maybe your spouse’s insurance can make up the difference; maybe not.

Or consider involuntary career changers.  Those workers who’ve been laid off often face a choice between paying astronomical premiums to stay on COBRA or dropping down to a much less comprehensive plan.   Yes, the COBRA subsidy included in the American Recovery and Reinvestment Act of 2009 has been a big help, but this job market is brutal and many are remaining jobless long enough to see that benefit expire.

Even 8+ years post-career change, I myself keep running up against this as a self-employed.  Every November when my renewal package comes, I steel myself for an eye-popping increase to what is already a sky-high premium.  Sometimes I swallow hard and accept the new rate; other times, I opt to “self-insure” for more things, i.e. downgrade to a lousier policy. 

This year, I already know I’m in for a bigger-than-usual wallop.  Why’s that??  I’ve reached a birthday that qualifies me for a new “rate class”, as they say in insurance jargon.  i.e. I’m older enough that stats say I’ll be costing the insurance company more so they have to increase my premiums by even more than the inflation-beating annual percentage to which I’ve grown accustomed.    Argh. 

Health insurance for the self-employed, or anyone who’s not in a very secure long term job (read: almost everyone), is not for the faint of heart, that’s for sure.   I’m sorry to say I don’t have a good answer for any of this, one of the most vexing challenges facing career changers.  But it seems clear that each of these “little” gaps in the current system add up to a solution that really doesn’t match the way the world of work is evolving.  In my wildest dreams, I hope that we — the collective “we”, that is – can do something to close that distance sooner rather than later.  In the meantime, at the very least, be sure to make the absolute most of the benefits you have now before you reach some milestone and they become a treasured memory of the good old days.  Stay well!

So if you’re among the many Americans who remain “employed but worried,” there’s no time like the present to make sure you squeeze every last drop out of your employee benefits before news of a pink slip puts them out of reach.  For starters, take a look at:

• Flex Spending Accounts - Get familiar with your plan’s details and deadlines. If necessary, move up eligible expenses to ensure you spend your share before you lose the chance. 
• Group Health Insurance – Schedule known needed treatment ASAP, before you get laid off.  For example, if you’ve been putting off making that allergy, dentist, or eye doctor appointment, waiting until after a layoff could cost you.  First, if your new health coverage is not as comprehensive, a likely scenario, you’ll end up paying more out of pocket.  Second, if you can’t pay with Flex Spending plan dollars, you’ll get whacked again.  (NOTE: If you are eligible for a spouse’s health insurance or for COBRA continuation coverage assistance, you may have some wiggle room, but check to be sure!)  
• Life Insurance — If you need insurance and your only coverage is through your employer’s group plan, start doing some research ASAP to determine the best way to make up for the loss of this coverage.   Term life insurance is the best, most cost-effective option for many people, but if your health history prevents you from obtaining affordable — or any — private coverage, it may make sense to take your group policy with you, if you can.  Either way, compare rates and benefits so you don’t have to decide in a hurry.
• 401k Loans –  If you have an outstanding 401k loan that you’ll be required to repay in the event of a layoff, but you don’t have the cash to do so, you may be in for an unwelcome surprise next tax season.  That’s because, if the loan is not paid off, the IRS will treat it as a taxable distribution. If you’re under 59 1/2, you’ll also be subject to a 10% penalty.  (Here’s a good article from Kiplinger.)   One option:  If you have been continuing to contribute while you repay your loan, you might be better off directing the contribution toward paying off your loan – unless you are getting an employer match on your current 401k contributions (& perhaps even then.)   As always, the right answer varies depending on the situation.  Do the math to determine what’s best for you!
• Outplacement benefits – Be sure to take advantage of whatever services your ex-employer-to-be provides to help you secure a new job. 

Oh, and about that Pink Slip Lemonade drink recipe… in case you didn’t catch it on Twitter earlier today, Chef Patti of Anastasia’s Table personal chef service has completed her testing and released the recipe for Pink Slip Lemonade… just in time for the weekend. Enjoy!

Having said that, client data I’ve seen lately suggests that group health care costs are starting to close the gap. Whether you view that as good news (i.e. the more widespread the problem, the greater the likelihood it gets fixed) or bad news (for your wallet right now), it does reduce the disincentive to pursue your dream of self-employment just a bit. OK, I guess in the short term, it’s simply bad news for all of us.  

In the long term, I know that many of us self-employeds are hoping for a “real” fix to this problem.  In the meantime, there are a few sources you can tap for information on how to get health insurance.  In NH, check out the new NHBusinessHealthOptions.com from MicroCredit-NH. Others, self-employed or not, can find out their options at MedHealthInsurance.   (If you know of other resources, please post them!)