Choosing a health plan: mind the after-graduation gap

As a fulltime college student, most of you have been covered by your parents' health insurance policies or a college student individual policy. Those policies will run out shortly after graduation, and you need to plan quickly to make sure there are no gaps in your coverage. (If you let coverage lapse for more than a month or so, you may find it even more prohibitively expensive to obtain insurance. Lapses in insurance coverage can also mean problems down the road: when you eventually find a job with good health benefits, you won't be covered for "pre-existing conditions" unless you had continuous insurance coverage.)

According to a Harvard Law School study, the leading cause of personal bankruptcy is due to illness and injury, and gaps in insurance coverage are the big reason for that. Even though you may be young and health, the cost of an unexpected illness or accidental injury could be catastrophic.

However, purchasing an individual insurance policy can often be prohibitively expensive. If you are currently covered by your parents' policy, you have the right to purchase COBRA coverage, but it will cost you 102% of what your parent was paying for your coverage PLUS what your parent's employer was contributing. That can easily be $400 per month or more! The Wall Street Journal recently ran an article with some suggestions for alternatives.

Those of you staying in New York State after graduation may find that the state-run Healthy New York plan is your lowest cost option if your first job doesn't provide health benefits. It will give you a number of options for different HMOs and insurance companies and the premiums are typically about $200 a month or less for an individual, significantly less than the open market. (A growing number of other states provide similar plans.) This can be a very good deal, especially if you only have a short gap of a few months to cover before you get a job that will provide medical benefits.

For most people, the best insurance deal comes from an employer-paid group medical plan. Group coverage keeps administrative costs low, and high employee participation rates keep down "adverse selection" problems that can cause individual policies to skyrocket in cost. If your employer offers you coverage, you should definitely take advantage of it. Large employers typically pay around 80% of the costs and that is a tax-free benefit to you under current law and they usually offer several choices of insurance plans.

Choosing a medical insurance plan with a high deductible and without drug benefits can hold premiums down while still providing protection against catastrophic medical bills. You can use the premium savings to set up a tax-free Health Savings Account (HSA) to cover deductibles and prescription costs. Choosing a Health Maintenance Organzation (HMO) plan can also save money on medical care costs in some cases, though it will restrict your choice of physicians, hospital, labs, and other providers.