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Medical Insurance

Although many people have medical insurance through an employer, their spouse's or partner's employer or under a government program, the US Census Bureau estimated that in 2004, there were 45 million Americans with no medical insurance at all. These people may have high out-of-pocket costs for even routine medical care, only part of which may be tax deductible, and they face the daunting prospect that a serious accident or illness could wipe out their life savings. But there are options available for finding and buying affordable health coverage.

Traditional health insurance

The most expensive coverage allows the greatest freedom of choice in the doctors you use and the medical procedures they select. Typically, you pay for costs up to a set dollar amount or annual deductible. Then insurance pays 80% of covered benefits after that; you pay the other 20%.

Health maintenance organizations (HMOs)

These organizations require you to go through a gatekeeper-your primary-care physician-to obtain referrals to most specialists within the HMO network of doctors. Services and procedures generally must be preapproved. But if you follow procedures, 100% of expenses are covered (after a small co-payment, such as $10 or $15 per doctor's visit).
Using an HMO avoids the need to submit claims to an insurance company for reimbursement.

Preferred provider organizations (PPOs)

These organizations are similar to HMOs except you don't need to have a primary-care physician act as a "gatekeeper" to approve referrals to specialists. At your option, you can see any doctor within the PPO system.

Buying individual health coverage

If you don't have coverage through your or your spouse's employer-free or subsidized coverage-and you don't yet qualify for Medicare, buy health coverage on your own.

? COBRA coverage. If you've left employment, been divorced from someone who had employer-provided coverage or have reached the age of majority and are no longer covered by a parent's employer policy, you can opt to pay the group-health insurance rate, plus a small administrative fee. COBRA is a federal law that requires employers who regularly employ 20 or more workers to offer continuation coverage under these circumstances. You can have the same coverage you previously had or can choose any coverage available to existing employees. However, COBRA coverage generally extends only 18 months following the triggering event.

Strategy: Buy individual coverage when COBRA coverage lapses, unless you or your spouse have coverage through a new employer. Don't let coverage lapse or you will have an exclusion period for preexisting conditions that will delay coverage of old conditions.

? Professional and trade associations. These associations offer individual coverage to their members at group health insurance rates. The type of coverage may vary-from fee-for-service to HMO-type plans.

? State programs. Your state may offer health care coverage if you meet certain requirements (for example, you fall below a set income level or you're a small-business owner who covers employees).

For example, New York has Healthy NY, a modestly-priced health insurance program for the uninsured (866-432-5849 or www.ins.state.ny.us/healthny.htm).
? Individual coverage. The most costly alternative for purchasing traditional medical insurance is buying it on your own, not through an employer or group. However, if you have no other options, individual coverage may be necessary to protect you from financial disaster due to health-related expenses.

Strategy: To keep costs down, buy a "high-deductible health plan," a policy that is designed to cover catastrophic medical needs (i.e., amounts above a high deductible) and make tax-deductible contributions to a health savings account (HSA). The HSA allows funds to grow tax-deferred and can be tapped tax free to cover out-of-pocket medical expenses.