A close friend of mine who knows me in real life and also as Richard Mayhew gave me a call this morning with some good news. His wife is pregnant, he just got an awesome job offer to build something really cool while getting paid really well, and he would be in my home town the same weekend that my family and I are going back to visit my parents for an early Christmas. Life is good, although the visit home may be expensive as I will be getting him a bottle of 25 year single malt Scotch to celebrate his first child and another bottle of the same to give to his child when s/he turns 21. Scotch recommendations are appreciated in comments.
Besides telling me the good news, he wanted some insurance help. He is giving his notice this afternoon at his current employer and probably won’t start at the new job until mid-November. His new employer offers coverage only on the first of the month following ninety days of employment. His current employer will cover him and his wife until the last day of November. He and his wife are facing a three month gap. What should he do?
This is an interesting question.
His family makes too much to qualify for subsidy so he can look on and off-Exchange or he can go COBRA for three months.
The most straightforward course of action is for him to get a PPACA compliant individual policy for the month of December and then another policy with a January 1, 2016 start date to use in January and February.. His family does well enough to not qualify for subsidies, so he can go either on or off Exchange. Going on-Exchange is simpler, but off-Exchange will have more choices. His wife wants to keep her Ob/Gyn but other than that there are minimal constraints.
He can make a couple of bets.
The first part of the bet is an expected utility optimization bet. Since he will be losing employer sponsored coverage, he qualifies for a special enrollment period. He can buy a very low cost, narrow network Bronze policy for dirt cheap for the month of December. The bet is that his wife can schedule her pre-natal visit for the last week of November and then mid-January and they can get any and all prescriptions for December in November. It is hit by a bus insurance and they can afford the deductible and given their age and general health, the odds are in their favor that they’ll pay their premium and use absolutely no services.
Then during the regular open enrollment period, he can buy a Gold or Platinum policy for January 1. This is mini-maxing. He knows his wife will start having more frequent and expensive pre-natal visits and his indoor soccer season with the associated risk of blown out ankles starts the first week of January. If she has the baby prematurely, the savings in deductible overwhelms the higher cost of premiums.
The other bet is a simplicity bet in that his family is doing well enough right now that they could afford COBRA premiums and the full deductible as his plan year restarted on October 1, 2015. He would be paying a lot more cash for three months if he plays COBRA straight up but it is simple.
If he wants to save money, he can take the COBRA option to not select COBRA for sixty days after notification of his eligibility and only pay the retroactive premiums if his family ran up big multi-thousand dollar bills in December or January. He would be running naked for December and January and paying cash out of pocket for pre-natal visits, but he could get a Bronze plan for February during the first week of January open enrollment that would bridge him to March 1, 2016 without significant risk.
The intersection of the end of the plan year and major life events allow for a number of games to be played with insurance to save some money. He is in a spot where he can probably get effectively covered for 3 months for $500 or less if no major issues arise, or $3,500 if he gets hit by a bus.