INSURANCE | Finding a policy YOU CAN AFFORD when you're on your own.

WHEN JANA and Michael Bitton switched jobs, leaving them and their 5-year-old daughter, Ashton, temporarily without health insurance, Jana searched the Internet for individual coverage the family could afford. She settled on an HMO, BlueShield Access Plus, for which the Bittons, who live in Lancaster, Cal., pay $300 a month--about twice as much as they were paying for group insurance in their old jobs but $100 less than they'd pay for group coverage through Michael's new employer.

Even though they have to foot the bill themselves, having their own health insurance is liberating, says Jana, 29. "We're not tied to the whim of an employer, and we don't feel tied down to a job because of the benefits," she says. "We're in control."

Not so Rozanna Patane. Last summer Patane, a financial planner in York Harbor, Maine, learned that her health-insurance company would be pulling out of Maine by the end of 2000--becoming the third health insurer she has lost in seven years. The Blue Cross policy she picked up to cover herself and her 10-year-old daughter costs about as much as she was paying for her old policy, but carries a much higher deductible of $5,000.

If you work for yourself, retire before medicare kicks in, or don't have health insurance through your job, finding individual coverage that you can afford is as much a function of the state in which you live as it is the state of your health. It often comes as a rude awakening to look for insurance on your own, especially if you've been spoiled by years of relatively carefree coverage through your employer. But that's been exacerbated over the past ten years as states such as Maine have passed laws designed to guarantee all state residents access to coverage.

Some states chose to pass "guaranteed issue" laws, which forbid insurance companies from rejecting people based on the condition of their health. Others elected to go with a "community rating" system, which requires insurers to charge everyone the same rates, regardless of health, or otherwise limits their ability to raise premiums. But these well-intentioned laws have often backfired, forcing some healthy people to pay more in insurance premiums than the monthly mortgage on a small house. And it's even tougher to find an affordable policy if you're in poor health.

Spreading the risk

INSURANCE usually works because companies can spread their risk over a wide range of people. The healthy ones end up paying more in premiums than they submit in claims, and the difference helps to subsidize sicker people with more expensive claims. Healthy clients accept the situation because they usually pay lower premiums than higher-risk clients--and they never know when they might become sick themselves.

But when insurance companies can't reject anyone or adjust rates based on risk, they end up charging everyone more. That's what happened in Maine after 1993, when the state passed a guaranteed-issue law. "Rates shot up dramatically because insurers could no longer cherry-pick," says Tom Wright, a health-insurance broker in Yarmouth, Maine. When prices rose, many healthy people elected to take their chances and drop their coverage, while sick people stayed on. Insurers then had to raise rates even higher. "We've entered an actuarial death spiral, and it's accelerating," says Wright

As the risk pools got worse, many companies decided it wasn't profitable to do business in the state and pulled out. Two of the holdouts, including Rozanna Patane's insurer, bailed out at the end of 2000, leaving an additional 12,000 Maine residents to hunt for alternatives among the three companies still doing business in the state.

Under her old coverage, Patane also paid about $200 a month, but the deductible was $1,500. Now her deductible has more than tripled, yet "it's the only viable choice for me," she says. She could have paid about $10 less a month with a group policy purchased through an association, but the insurer had a history of rate increases. She also had the option of joining an HMO--for $445 a month.

In Maine, insurers may adjust premiums a bit based on the age of the insured. But in New Jersey, everyone has to pay the same rate for similar coverage, whether you're a 25-year-old triathlete or a 61-year-old who has had quadruple-bypass surgery. That means everyone is able to buy insurance--but hardly anyone can afford it. A case in point: A plan that picks up 80% of medical expenses after you meet a $500 deductible costs $865 a month for an individual and $2,049 a month for a family.

HMOs cost less--about $300 a month for an individual and $853 for a family--but even that can be prohibitive, especially for young people who are too old for their parents' policies but hold entry-level jobs without benefits (see "Don't Get Sick," July 2000). Some self-employed individuals have resorted to hiring an assistant to work the minimum number of hours per week that would qualify them for an employer group policy, which isn't subject to the same rules and can cost significantly less than individual coverage.

New Jersey residents could cross the Delaware to take refuge in Pennsylvania, where individuals are able to buy comparable health-insurance coverage for a little more than half as much. California--another large state with a highly competitive health-insurance market and no community-rating or guaranteed-issue laws--is also friendly to individuals who are in good health. The Bittons, for example, found several options online through eHealthInsurance.com. Instead of the Blue Shield HMO coverage they purchased, they could have gone with a high-deductible Blue Shield plan that would have covered the whole family for just $150 to $200 a month. They chose the HMO because, with a young child, their family makes frequent visits to the doctor.

Even in highly competitive states, the outcome won't be nearly as favorable if you're not in the best of health, as Jim Thomas discovered. Until about a year ago, Thomas, a former computer engineer in Canyon Lake, Tex., always had health insurance through his employer, paying about $100 a month for coverage for himself and his wife, B.J.

When Thomas, 61, was laid off last March, the federal COBRA law required his employer to let him stay on the company's group policy for up to 18 months--at his own expense. Without the company's subsidy, Thomas's monthly premium jumped to $400.

But the worst was yet to come. In June, Thomas's former employer went bankrupt, and the group policy was dropped, leaving the Thomases uninsured. Jim scrambled to find an individual policy, but was repeatedly rejected because B.J. had had angioplasty at about the same time he lost his job. B.J. ended up with the insurer of last resort--the Texas state insurance pool--and is paying $400 a month for coverage with a $2,500 deductible. After shopping on the Internet, Jim found a policy on himself with a monthly premium of $171 and a $1,000 deductible. Ironically, if the Thomases had lived in a community-rating state such as New Jersey, B.J. might have had an easier time finding coverage--but Jim would have paid considerably more than he is now.

As it was, the Thomases ended up paying nearly $500 a month more for less coverage at a time when their income had declined considerably. They considered dropping coverage on B.J., who will be eligible for medicare in two years, and taking their chances. "You ask yourself, How lucky do I feel?" says Jim. Not lucky enough, the Thomases decided. They went ahead and purchased the insurance.

A buyer's guide

WITH STATE policies varying all over the map, there's no sure route to finding affordable health coverage on your own. If you happen to live in Kentucky, Maine or Washington State, you'll have few choices of any kind. In rural areas of Texas and other states, you can't always save money with an HMO because there aren't enough people to make it economical. Association plans, which sometimes offer good deals, are unavailable in several states. And your state may limit your options for raising deductibles or cutting back on coverage to lower the price.

But you have to start somewhere, so follow these steps. Depending on where you live, they may lead you to a dead end--or to a far better deal than you have now.

Use a health-insurance broker who knows your market. Brokers not only will help you shop for price, they'll also know if a company has a reputation for raising premiums or hassling policyholders who file claims. If necessary, a broker can find a group for you to join or help you sign up for your state's high-risk pool.