Chris Tann (ctann) wrote,
Chris Tann
ctann

COBRA is an absolute ripoff!

I just changed jobs, and went from being an employee, back to the wonderful life of being a consultant - in other words, a small business owner. So, I have embarked upon the task of procuring for myself, all of the little details and benefits that an employer usually provides. Now that I am both employer and employee, it behooves me to ensure I get the best deal possible!

Now, I have done all of this before, so I pretty much know the ropes. I Still have a Self-Employed 401k plan (which is much better than the plan that was used by my previous employer), I know where to apply for Business Licenses, DBA's, etc... And of course, it is time to tackle Health Insurance.

Now I am a big proponent of HSA's (Health Savings Accounts). When coupled with an "HDHP" (High Deductible Health Plan), they allow you to put pre-tax money into a special savings account. This is kind of like a special 401k plan, with the added advantage that you can draw out money straight away, and as long as it is used for "Approved Medical Expenses", it remains tax-free. I could go on at great length as to why HSA's are such a good deal - feel free to ask, I will bore you to tears on the subject!

Anyway, back to the subject in hand - COBRA. Now, the idea of COBRA is a good one - it allows people that are leaving (or are laid off from) a job to be guaranteed continued health care coverage. This is a government mandate from back in the 80's. Sounds like a good thing, right? Righhhhhhht.....

So the problem is, companies (at least on paper) pay far more for health insurance than individuals do. Ridiculously so, to the point that I have a very hard time believing it. I just got my COBRA offer to continue my HDHP with Blue Shield - over $900/month for myself and my Spouse! That is an outrageous charge. Was my Company really paying all of that? 

So, off to a little website (www.ehealthinsurance.com) to get a competing quote. A similar plan from Blue Shield (and mind you, similar is always the best you can do - the insurance companies make sure that there are so many plans with so many small differences, that it is really difficult to compare) came out with a retail price of $172/month. Yes, $172 compared to $900. For almost the same plan, from the same insurance provider. Something is definitely out of whack here...

OK, we are lucky enough to be healthy, so that is a big plus. If we weren't, or we were older, then it would probably cost far more, and the COBRA amount of over $10k/year might start to look good. But doesn't that seem odd as well? That if we were old or sick, we would have to pay so much more for the health insurance, and we would be so less likely to be able to afford it...

Now I ran into a slightly different situation a while ago, and that gave me a suspicion as to what I think is going on. I had some routine medical tests done, and when I got the Bill, the fees were over $600. But, luckily for me, my insurance company had a "negotiated rate" - of $150. No wait a minute, if I had gone in there without health insurance, I would have paid 4x as much? Where is the sense in that? And if this medical company can survive with getting paid $150 for these services, how do they justify ever charging 4x as much?

So, let me tell you my suspicion - The healthcare industry, just like a lot of retail industries, inflates their "retail price" artificially, and then give discounts, bonuses, and rebates to bring the amounts back down to a "reasonable" amount. But because there are so many rules and regulations, it makes it even trickier - and I think that it has grown to outrageous proportions - and is bouncing around in all parts of the system. So, the medical providers jack up their retail prices, and then offer bigger discounts - i.e. the income stays the same, but it just looks like the costs of healthcare are "spiralling out of control". The insurance companies probably do the same thing - jack up the prices of the plans that they sell to employers, and then give discounts, rebates, etc. These discounts, of course, are hidden from the poor schmuck that is footing the bill for COBRA...

Anyway, these are just my suspicions. Its time someone blew the lid off this whole thing....
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