America's Best Health Insurance Plans

by Lesley Politi on November 8, 2008

America’s Best Health Insurance Plans

If your company stumbles, what happens to your health coverage?

Posted November 7, 2008

For years, workers have watched their healthcare outlays rise and benefits shrink, and for some, whether they will have benefits at all suddenly is in doubt. As Wall Street’s turmoil sloshes over Main Street, it seems that every day another trusted company files for bankruptcy, succumbs to a takeover, or shuts its doors. Nearly 34,000 businesses filed for bankruptcy in the 12 months ending in June, 42 percent more than the year before—and the word from on high is that this may be just the beginning. If your company stumbles, your healthcare, along with your job and your 401(k), could suffer as well. Many employees may worry they’re only a couple of bad balance sheets away from joining the ranks of the nearly 46 million Americans without health insurance. Unfortunately, they may be right.

Cameron Lewis knows how quickly things can come apart. The 45-year-old ex-flight attendant for ATA Airlines got a 5 a.m. call this spring at his La Grange, Ill., home, just an hour before heading for the airport for a Chicago-Dallas flight. Don’t bother coming in, he was told. ATA had filed for bankruptcy and closed its doors immediately. That was the end of Lewis’s health insurance, too.

Costly COBRA. Lewis could have extended his coverage under COBRA, the federal law that gives employees who lose jobs the right to continue coverage under the company’s health plan for up to 18 months. The law applies only to companies with 20 or more workers, but some states extend the option to workers from smaller companies.

Taking advantage of COBRA can be costly, however. Workers must pay the full premium—their former share and the former employer’s share—plus a 2 percent fee. The monthly tab to cover Lewis, his wife, and their two children would have been over $1,000, far more than they could afford. They enrolled the children at no cost in Illinois’s All Kids health insurance program, which bases premiums on family income and size. As a stopgap, Cameron and his wife signed up for a $150-a-month Humana policy with an $8,000 deductible. “Basically, if something catastrophic were to happen, we wouldn’t be bankrupted,” says Lewis.

When companies shed workers, COBRA can cushion the blow. But with the average total premium for a family health insurance policy approaching $13,000 a year, many families, like Lewis’s, cannot afford the expense in their newly strained circumstances. Only about 27 percent of eligible workers elect COBRA coverage, according to a survey by Spencer’s Benefits Reports. There is another option for two-earner couples: If one partner still has a job and is covered, the newly jobless spouse can join that plan under special enrollment rules that kick in following a bankruptcy or other “qualifying event.” But that was no help to Lewis, whose wife’s part-time job in medical billing doesn’t offer health insurance.

At least COBRA was an option for the Lewises. ATA was a subsidiary of Global Aero Logistics, which continued to operate two other carriers. If a company shuts down entirely, the health plan may be terminated altogether; coverage cannot be extended from a plan that no longer exists.

That’s what happened to Mark Przesmicki and his wife, Jo Ellen Soper-Thompson, of Menomonie, Wis. Just over a year ago, Przesmicki, then a long-haul trucker for Menomonie-based Trac Inc., got a call after delivering a load of paper to the Twin Cities: Come back to the yard. The company was shutting down.

The timing could not have been worse. The month before, Soper-Thompson had racked up some $5,000 of expenses for a colonoscopy during which possibly cancerous polyps were removed. Trac normally would have covered her claims. Its health plan was “self-funded”—a common arrangement in which an employer pays claims directly as opposed to purchasing insurance for that purpose. But with Trac shuttered and in liquidation, Mark and Jo Ellen were stuck with the bills. Their $400 August premium had already been deducted from Przesmicki’s paycheck and was lost. (If the company had purchased coverage from an insurance company and kept its premiums current, the insurer might have covered the colonoscopy expenses.) COBRA wasn’t an option even if the couple had wanted it, because their health insurance had ended.

Quick return. About the only thing the couple recouped was $1,400 of the $2,000 they had deposited into their flexible spending account for medical expenses that year, and that was only thanks to a sympathetic benefits administrator. When Trac called, which had administered the company’s flexible spending accounts, to ask about the deposits, “We told them, ‘Too late, we already sent them back to the employees,’ ” says President Ric Joyner.

Employees aren’t always left so exposed when a company gets into financial trouble. Another company often takes over the ailing firm, as happened with Washington Mutual, Wachovia, and Merrill Lynch, which were acquired by other banks during the financial meltdown. Employees absorbed into the new firm may see no changes in their benefits, at least not initially. “The new employer may continue the existing program for a period of time,” says Jeff Munn, a principal at benefits consultant Hewitt Associates. “It may be a year or more before employees have to think about changes.”

Retiree coverage may be a different matter. “Because they’re not employees, they’re more vulnerable,” says Mary Sullivan, a labor lawyer with Segal Roitman in Boston. Larry Baird experienced this firsthand. The 73-year-old former Monsanto plant manufacturing director thought he could count on zero-premium retiree health coverage once he turned 65. But in 1997, seven years after he retired at age 55, Monsanto spun him and thousands of others off into a new company called Solutia, a chemicals manufacturer based in St. Louis, which declared bankruptcy in 2003. In February of this year, the company emerged from Chapter 11. Baird’s health coverage, which had gradually grown pricier while the company was reorganizing, suddenly became unaffordable. Faced with a $416 monthly premium, plus higher drug costs, deductibles, and copayments, Baird dropped it and signed up with a $98-a-month Medicare Advantage plan instead. “Big companies make big promises, and then they don’t keep them,” he says.

Stable insurers. A comforting note amid the current economic wreckage is that healthcare insurance providers themselves are unlikely to go under. State regulators keep close tabs on these companies. They must submit quarterly financial statements and annual reports demonstrating sufficient reserves to cover claims. The standard in all states for “sufficient” requires that for every $100 in premiums collected, an insurer must have $250 in reserve. If a company’s reserves drop below that level, regulators can effectively take over management of the company until its reserves are back in line.

Troubled insurers can—and occasionally do—become insolvent. If a company loses liquidity because of underperforming investments, for example, it might be unable to pay claims or continue operations, says Sandy Praeger, Kansas insurance commissioner and president of the National Association of Insurance Commissioners. But in those relatively rare instances, claims are covered by a guaranty fund into which all insurers must pay. In her four years as an NAIC officer, says Praeger, she is unaware of any instance in which consumers have been left with unpaid claims because of insurer insolvency. “We have so many opportunities to intervene before a company becomes insolvent,” she says.

In these uncertain times, that’s one less thing to worry about.


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