The benefits of benefits…

April 19, 2007

For other Entrepreneurs out there: Advice on benefits

I’ve been reading a lot of entrepreneurial blogs out there and found that the topic of “benefits” is rarely discussed. Most cubicle entrepreneurs, otherwise known as corporate employees, are used to a wide variety of benefits, ranging from health-care, disability, maternity leave to other forms of insurance. The larger your employer, the cheaper and larger variety of benefits you’ve probably received. This is likely to spoil just about any entrepreneur who is struggling to pay health-care insurance for a party of 1. The remainder of this post will hopefully address some concerns by cubicle entrepreneurs regarding the anticipated costs of these corporate benefits once they pull the plug and head off on their own.

The entrepreneurs best friend in the benefits world is the U.S. government. Their is a law called COBRA that entitles any corporate employee up to 18 months of continued health-care coverage once he/she leaves the company. The good news here is that you will get your same health-care coverage at a fraction of the price it would cost you to purchase on your own. For example, I worked for Citigroup before taking the plunge to start OnCard Marketing. I had United Health Care Choice Plan A insurance (whatever that means) and was paying these health-care costs pre-tax out of my paycheck.

When I left Citigroup, I had to fill out a COBRA form, which they provided to me, that entitled me to continue receiving my United Health Care Choice Plan A for up to 18 months. The catch here was that I would need to pay the full premium, whereas before, Citigroup was paying for part of it. In the end, I was able to continue my great health insurance at approximately $420 per month. Yes, that’s expensive, but there are many cheaper plans out there from other health-care providers (which was one of the best). At the most expensive end of things, a new entrepreneur leaving the corporate world probably spends about $470 per month, including health insurance and dental insurance (that’s if you had both beforehand).

The downsides of COBRA are timing and flexibility. First, it’s only good for 18 months, so you’d better have a plan B for obtaining coverage after that time. Maybe you have a wife who is a teacher or employed by somebody who would give you family coverage. Second, COBRA is not that flexible. Once you cancel your plan or part of your plan (dropping the dental coverage for example), you can’t re-add it. So make sure not to cancel the health-care coverage and be sure you don’t need dental if you decide to cancel. You’ll never get it back.

The upsides to COBRA are numerous. The first big perk I wasn’t aware of before leaving Citigroup was that Citigroup actually paid for my first 3 months of coverage ($470 per month) and split the second 3 months with me 50/50 ($470 per month). After month 6, I decided to drop my dental coverage and continue to pay $430 a month for health-care. While this is expensive, going without health-care coverage is a pretty stupid idea and I wouldn’t recommend it. Like I said, there are other cheaper provider out there that might run you $200-300 per month. But these are high-deductible plans that will cost you money every time you go to a doctor and are only useful if you end up in the hospital with a huge problem.

So COBRA takes care of you for 18 months. The only question is, what are you going to do after 18 months? There are a few options. You’re best bet is to obtain a high-deductible plan that will only pay for itself in the case of emergency. The problem you face is that nobody will want to give you health insurance as a party of 1 or 4 (if you have a family). It’s all about risk diversification for the insurance companies. They’ll make it much cheaper if you’re part of a group of 10,000 than if it’s just you. So, the sad reality is that if you are lucky enough to obtain health insurance after the 18 month COBRA is up, it will probably be really lousy. You may find that you are just “un-insurable” as a party of 1. Don’t be surprised. Health-care companies have figured out that if you’re one person looking for health-care coverage, you probably need it (which means huge loss for them).

Here are some good resources for COBRA and other healthcare providers.

http://cobrainsurance.com/information/
http://www.individual-health-plans.com/
http://www.dol.gov/ebsa/faqs/faq_consumer_cobra.html

I hope this helps those of you out there looking for answers on this topic.
JT

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2 Responses to “The benefits of benefits…”

  1. Amy Cham Says:

    For a while, I had GHI, which provided basic personal coverage at a decent price (I think it was about $150 per month). That was in upstate NY, though. NOt sure what their geographic coverage looks like.

    Often, too, a city’s Chamber of Commerce will have a group plan that individuals and very small businesses can sign on to. You have to pay the full premium, but at least you have access.

  2. jtreiber Says:

    Thanks Amy! That is incredibly useful advice , especially for those of us who may not know where to turn for basic coverage. There’s enough to worry about when heading off on your own. Any way to minimize the stress with this type of stuff makes it all the easier!


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