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I quit my corporate job and needed health insurance

by | Sep 28, 2016 | health insurance, healthcare benefits, healthcare coverage, healthcare navigation, small business, startup

I quit my corporate job and needed health insurance

by | Sep 28, 2016 | health insurance, healthcare benefits, healthcare coverage, healthcare navigation, small business, startup

“I QUIT!!!” is how I replay leaving my corporate job.

But instead, it was more like “I’ve been thinking … you know, I’ve always wanted to … well, if it makes sense and the timing is right …”, spread out over dozens of conversations.  The reason for the hesitation was all about benefits, specifically health insurance!

Ever since I was in college in Northern California during the first dot com boom, I’ve always wanted to give entrepreneurship a try.  I started my career as a graveyard pharmacist, which gave me time to read books about HTML, XML, Java, and PERL, albeit the “Idiot’s Guide to …”  I tried to code my own website using Dreamweaver only to discover that some things are best left to the professionals.  But I never stopped dreaming.  Call me a late bloomer or risk averse but at the ripe age of 38, I left my corporate job to start a business.  

Boy, was I unprepared.  I was on cloud nine being my own boss, controlling my own schedule, and making my dent in the world.  And the first thing I had to tackle was health insurance.  In about a week after leaving corporate, I got a thick envelope in the mail. I opened it and discovered the joy of COBRA benefits.  Truth be told, I always had another job lined up, before I ever quit my current gig.  So I never paid much attention to COBRA benefits whenever I changed jobs in the past.  But this was different.  I was my own boss and now needed health insurance.  So I thoroughly read my COBRA benefits and realized that I would have to pay approximately $800 a month to keep my health insurance.  And this health insurance had a $3,500 deductible!  So I will have to pay almost $10,000 a year for the privilege of an extra $3,500 deductible.  And the last time I went to the doctor was … well, I guess it was the MinuteClinic two years ago.  So I said “No, thank you” to COBRA benefits.

But I still needed health insurance.  So I went on www.healthcare.gov.  To be honest, I never bought into the venom spewed about Obamacare.  I wanted to see it for myself.  So I went on to the health insurance exchange to find out how much health insurance would cost.  Again, despite what I heard, I actually found the process to be fairly easy and intuitive.  All healthcare.gov cared about was my gender, my age, and whether I smoked.  So the setup and rate check took me about 3 minutes.  But then the rates came back.  The cheapest plan was $354 a month with a $5,000 deductible!  A little over $4,000 a year when I’m (relatively) healthy!  So I said “No, thank you” to Obamacare.  Healthcare.gov was cheaper than COBRA but still more than I needed and more than I could afford to pay.

healthcare-gov-plan-cost-2

So after exhausting my two options (COBRA, Healthcare.gov), I did what any rational person would do.  I asked my wife for advice.  The timing was serendipitous and she was also going through open enrollment.  So I was able to compare her coverage, including spousal coverage.  She already had our two children on her plan.  So I was essentially adding a “big kid” onto her health insurance.  Surprisingly, adding me to her plan had almost no impact on our monthly premiums, which went from about $200 per month to $250 per month.  The big shift came when our deductible moved from $3,500 to $7,000.  But being (relatively) healthy, my reaction was a relieved “thank you, wife!”

Being a good husband, I even offered that I would complete the enrollment process.  So I logged in, selected the plan, and confirmed insurance for everyone in our family … on my wife’s health insurance.  Thinking back, the reason we didn’t combine our plans earlier was because because of the deductible.  I had a $3,500 deductible for myself whereas my wife also had a $3,500 deductible with her and our two children.  Combining our plans meant we’d increase our deductible to $7,500 and we’d pay more in health insurance premiums.  Here’s the math:

 

Shaun’s Plan

Wife’s Plan Combined Plan

Monthly Premiums

$200 $200 $250

Deductible

$3,500

$3,500

$7,000

Potential Annual Expenses $5,900 $5,900

$10,000

 

But because I infrequently used healthcare and I knew I would never come close to my $3,500 deductible, it made sense to keep our plans separately.  In fact, the breakeven to combining our plans comes around $4,150 in annual healthcare expenses, which we have never met.  So we kept our separate health insurance all these years.

But now that my options were COBRA or Healthcare.gov, my best option was to join my wife’s plan and see our deductible increase from $3,500 to $7,000.  One other side but important benefit is that joining my wife’s health plan meant that our insurance premiums are paid with pre-tax dollars.  Both Healthcare.gov and COBRA premiums are paid with post-tax dollars. So that’s a 37.5% savings from joining my wife’s plan!  And every year, we max our contributions to our Health Savings Account (HSA) so any out-of-pocket healthcare expenses also benefit from a 37.5% savings!  (More to come on HSA’s in a later post.)

Once I became an entrepreneur, it made economic sense to join my wife’s health insurance.  Do note that not every employer provides subsidies for spousal and dependent coverage.  But with the 37.5% tax savings over COBRA and Obamcare, any delta may be blunted.  But to be thorough, I outline what might have happened if my wife’s employer provided no insurance subsidies:

 

Wife’s Plan + Spouse Equivalent ACA Plan
Monthly Premiums $200

 

+ $400

 

$640 (pre-tax)

$400 (post-tax)

Deductible $3,500 + $3,500 $5,000
Total Annual Expenses $5,900 + $8,300

$12, 680

 

Without subsidization, the Obamacare plan looks equivalent to joining my wife’s health insurance.  However, when you factor in the 37.5% tax advantage, then my wife’s plan become a better deal.  Although there’s a trend for companies cutting back on spouse and dependent coverage, most large companies still provide subsidies, in order to attract and retain talent.  So the best advice is to look at rates for “Employee” and “Employee + Spouse” coverage.  And make sure to factor in the tax advantage from joining your spouse’s plan, as compared to ACA and COBRA plans.

I want to take a second and explain why COBRA should be used as your last resort.  First, a little background on COBRA.  In 1990, Congress passed a law requiring employers to allow employees to take their health plan with them as they transition from jobs.  But employers were no longer responsible for providing any subsidies and also limited coverage to 180 days.  Before the Affordable Care Act, COBRA was a viable and probably the only option for people with pre-existing medical conditions.  But with the creation of Healthcare.gov, anyone can purchase health insurance upon the loss of their job, regardless of health status. (Without getting into any politics, this is the reason that I’m a huge fan of Obamacare!  People that need healthcare can now purchase health insurance!)  COBRA and Healthcare.gov are both paid with post-tax earnings so there are no tax advantags.  But from my research, Healthcare.gov plans are about 20-60% cheaper than COBRA plans, depending on which Healthcare.gov plan you choose.  So if you are on a budget, as most people are when they lose or change jobs, Healthcare.gov are a cheaper option than COBRA plans.  But many may still opt for COBRA plans, particularly if their employment and insurance gap is limited.  And the extra dollars you spend may just be the easiest option.

There’s a lot to digest here.  But here’s what you need to know if you lose health insurance from your employer …

  • Does your spouse’s employer offers health insurance? (Y/N)
  • If “yes”, then joining your spouse’s health plan is your best option
  • If “no”, then assess how much you spend annually on healthcare expenses.
    • If you spend more than $1,000, then your best option is a healthcare.gov plan
    • If you spend less than $1,000, then you may have options specific to your situation (age, location, income, etc).

If you fall into the last bucket, shoot me an email (support@myardina.com) and we’ll help you navigate your options.

Please reach out, if I can help you with any of the calculations I did.  We’ve built financial models that just plug in the information.  So if you’re a data person, like me, then you can have information that’s specific to your situation so you can make the best decision for you, just as I made the best decision for me.

Wishing you health, wealth, and happiness!

Shaun

Shaun Young

When people tell me about their frustrations with healthcare, it’s always about the healthcare and health insurance system; it’s never about the actual healthcare. My sole purpose is to help you navigate the healthcare system and your healthcare benefits. I’ve spent almost two decades inside and across the entire healthcare system with corporate leaders, such as Eli Lilly, Kaiser Permanente, Walmart, and Cardinal Health. And my professional experiences cuts across clinical with a Doctor of Pharmacy from University of the Pacific and business with an MBA from Harvard Business School. Please reach out and ask me your questions about navigating the healthcare and health insurance system.

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