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Recent grads can devise health-coverage strategy


Like many recent graduates, Garrett Rooney didn't buy health insurance after finishing college. Having never been sick "with more than a sniffle," he figured he could do without insurance before starting work as a software engineer two months later.

But then Rooney was diagnosed with an aggressive case of Crohn's disease, an inflammation of the bowel. After rounds of tests, medication and life-saving surgery, his health improved. But the ordeal left him with nearly $50,000 in medical bills.

It's hard to think about health insurance when you're young, healthy and short of cash. And surveys show that 12 million people between the ages of 19 and 29 were uninsured in 2001 - 30 percent of all those without coverage in the United States. Stories like Rooney's point out the potential cost of a lapse in insurance.

But how can you keep coverage affordable? Even when you do land a job with benefits, consultant Hewitt Associates estimates the average employee contribution will be $1,565 in 2004, up 22 percent from the year before.

One thing to do is to get a cheap insurance plan with a high deductible and open up one of the new health savings accounts (HSAs) that let you put aside tax-free dollars to pay for medical expenses. You can fund the account equal to the value of your insurance plan's deductible, with an annual cap of $2,600 for individuals and $5,150 for families.

The money can grow in a CD, mutual fund or other investment vehicle, all without tax. And when you make withdrawals to pay for approved medical expenses, like dental or vision, it's tax free, too. And you get these deductions even if you don't itemize on your tax return.

You can set up a health savings account as long as your insurance has a minimum deductible of $1,000 for individuals and $2,000 for families. That means the insurance doesn't kick in until you've paid $1,000 for medical expenses, after which the insurance company covers at least a percentage of the costs. These high-deductible plans typically don't cover routine check-ups, prescription drugs or costs associated with pregnancy. The monthly premiums can be as low as $50.

If you're working, your employer may offer high-deductible and HSA plans. Otherwise, you can buy one from companies such as Fortis Health, eHealthInsurance and Golden Rule. Once you set up an HSA, you can continue putting money away no matter how many times you switch jobs - just as long as your insurance has the minimum deductible. And if later on you opt for different coverage, the money is still yours to use (deductions other than for medical expenses incur tax and a 10 percent fine).

The major drawback of a high-deductible plan is that the limited coverage may prove expensive if you're sick. "These are bare-bones policies," said Karen Pollitz, project director at Georgetown Health Policy Institute. "If you're really sick or get pregnant, it may not be at all irrational to look at these programs and say forget it."

In that case, you may be better off buying COBRA. This federal law allows you to stay on your employer's group insurance for up to 18 months if you've lost your job, or through your parents' coverage if you no longer qualify as a dependent. But you'll be paying both the employee share and company share of the premiums, which can hit $500 a month or more.

Even if you are healthy, COBRA or traditional policies may be the only option in places such as New York and Massachusetts. There, state laws require insurance companies to charge a flat rate for premiums, prohibiting high-deductible plans.

However, there is a loophole: For students who buy insurance through Fortis Health at least one month before graduation, you can renew the coverage after school and use it anywhere in the United States. So, if you're a resident of New York, but go to school in Illinois, where the plan is offered, you can buy the insurance and hold on to it even if you move back home. A word of caution: This same tactic is not available through all independent providers.

Carolyn Bigda is a New England-based reporter.

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