Kids and Health Care: Other Options
If your COBRA coverage is about to expire and you expect to start another job that provides health insurance soon, a temporary insurance policy might be a good choice for filling in the gap.
This sort of coverage is expensive and has lots of limits; but it will protect you and your family from catastrophic medical expenses. Simply said, a temporary health policy is a form of individual family coverage. It usually will have a deductible, then will reimburse you for a percentage of your costs. Most temp plans will reimburse you on a percentage basis up to a set amount (sometimes $5,000), then pay 100 percent of costs above that threshold.
But, following the peculiar logic of insurance, the coverage will usually be less expensive because it's short-term.
A temporary medical policy will pay typical hospitalization costs -- but only for procedures that are medically necessary, at rates that are usual and customary -- as well as recovery costs, including time in a nursing home or in-home visits from a registered nurse. It often will not pay for any condition you had during the 24 months prior to the start date of the policy, or for any self-inflicted injuries or job-related injuries or illnesses that might be covered by worker's compensation insurance.
Also excluded, coverage for:
- dental treatment;
- routine physicals and immunizations;
- routine pediatric care of a newborn;
- normal pregnancy or childbirth;
- sterilization (or the reversal of sterilization);
- mental illness, alcoholism or drug abuse;
- prescription drugs and medications that you get when you are not confined to a hospital; and
- treatment outside the United States.
Also, temporary health insurance tends to come with rigid time requirements. If you purchase 120 days' worth of temporary coverage and get a job in 30 days, the temporary insurance usually can't be cancelled. (With standard individual family coverage, if you change to some other sort of medical insurance, you could get a refund -- less administrative expenses -- for the unused portion.)
Another relatively new option is the tax-free medical savings account (MSA), which combines a long-term savings account and a high-deductible health insurance policy.
MSAs began as part of a pilot program that was put in motion by HIPAA. The pilot program allowed no more than 750,000 policies to be distributed -- and those early policies were marketed primarily to high-net-worth individuals and the self-employed.
An MSA includes the actual savings account, which -- like an IRA -- is funded with pre-tax dollars. These contributions lower your taxable income. Then, you can use the money in the MSA to pay a variety of medical expenses.
You also use the pre-tax dollars to buy some form of high-deductible, catastrophic health insurance policy (usually offered in tandem with the MSA by the same company). The annual deductible for a single person must be between $1,500 and $2,250; for families, between $3,000 and $4,500.
A family can contribute up to 75 percent of the deductible into the MSA each year.
MSAs also allow you to use money for a broader range of services than are covered by most health plans. The funds in an MSA can cover small, everyday medical or drug expenses -- as well as dental care, eyeglasses, psychotherapy or home health care.
Money that you put into an MSA grows tax-free, like an IRA or a 401(k) retirement plan and accumulates over time. If the annual premium is not exhausted at the end of the year, this amount will roll over into the next year; when you turn 59½, the money in the account becomes your property and is no longer restricted to use for health care.
This is why MSA policies are being marketed as investment tools -- since the leftover money can be rolled over year after year and collect interest.
