Insurance available in transitions

People who find themselves victims of a layoff or find a new job that doesn't offer health insurance face a difficult task in deciding how to replace health insurance. While the options may be more expensive than a subsidized corporate plan, some do offer tax benefits an employer cannot.

The first option is to continue your previous employer's insurance through COBRA. While this maintains your coverage, it's expensive, as you must pay the full premium and employers usually tack on an extra 2 percent to cover administrative fees.

Instead of this option, explore an individual policy with the same insurer or another provider that includes your doctors in its network. If you are healthy, you also could lower the benefits provided to get a lower rate. For example, if you've been going to the doctor only for routine visits or emergencies, you might opt for a higher deductible. Just don't wait too long to get new insurance, as pre-existing medical conditions might not be covered if you have been without insurance for more than two months.

Another option is to use a Health Savings Account. These let you make tax-deductible contributions to a savings account from which withdrawals are tax-free if used to pay medical costs. Any other withdrawal purpose is subject to a 10 percent penalty. The balance when you turn 65 can be withdrawn for any reason without tax penalties. You must pair the HSA with a high-deductible medical policy and not be eligible for coverage from your or your spouse's employer.

For entrepreneurial individuals, starting a business brings the most benefit for health insurance. A business, whether it's one person or a corporation, can deduct the cost of health insurance. Therefore, an individual can start a business, buy insurance for his family and then deduct the cost when filing income taxes.

However, as with the HSA, the individual or spouse must not have access to health insurance through an employer.

To help you sort through the choices, start by asking an independent insurance broker to shop the marketplace for policies that fit your situation. Also, try searching online at eHealthInsurance.com and consulting with a financial adviser.

Reach Dan Serra at serra finance@yahoo.com.