In the midst of recession, newly laid-off workers are facing an additional hurdle: where to find decent, affordable health insurance. The situation has further undermined the financial security of millions of Americans who've already lost their incomes.

Increasing layoffs coupled with rising costs in medical bills have left a large number of people uninsured. Indeed, expensive health care bills are making it difficult for the unemployed to find affordable alternatives to most company-sponsored plans. Those without jobs face high premiums for insurance that provides worse coverage than plans offered through former employers.

As stated in a December 2001 report conducted by MIT professor Jonathan Gruber, the National Bureau of Economic Research and the Kaiser Family Foundation: "As the economy continues to sputter and health insurance premiums rise, it is likely that the number of Americans without insurance will grow."

For every 100 people who lose their jobs, 85 lose their insurance, the report found. That's because more than four out of five nonelderly people get their health insurance through their employers.

Between the end of 2000 (when the number of uninsured was last counted by the U.S. Census Bureau) and October 2001, the unemployment rate rose by 1.4 percent, to 5.4 percent. Using that data, the authors of the Kaiser analysis estimated that for the same period, the number of Americans without insurance grew by about 1.2 million, from about 38 million. Since the publication of the report, a continued rise in the unemployment rate, to 5.8%, has probably boosted the number of uninsured people even further.

Meanwhile, after leveling off in the 1990s, insurance premiums have spiked. Premiums for employer-provided insurance grew 11 percent in 2001, the largest increase in almost a decade.

Annual premiums for employer-sponsored coverage now average $2,650 for singles and $7,053 for families, according to the Kaiser Family Foundation.

And laid-off workers aren't likely to receive any help from the government. In December, lawmakers discussed subsidizing the cost of health insurance for workers who'd been laid off, but negotiations fractured along partisan lines before Congress recessed for Christmas. According to reports, Democrats wanted to help cover up to 75 percent of COBRA benefits for workers who lost jobs, while extending Medicaid benefits. The Bush administration favored granting individuals tax credits to help them cover up to half the cost of insurance in the private market.

Given the extent of the philosophical divide, onlookers aren't optimistic that talks will be revived. "The fact is that Congress is not persuaded that the economic wolf is at the door," says Henry Aaron, a senior fellow in economic studies at the Brookings Institution. "Therefore they're willing to stand on principle as far as the structure of economic assistance."

Why Health Care Costs Are Rising

But in the absence of outside intervention, it's not clear how people who've lost their incomes will be able to afford health insurance premiums, which will probably increase in line with rising health care costs.

Experts say that a complicated mix of factors has fueled the inflation. One of the main causes has been increasing drug prices. Indeed, an Ernst & Young study of one California health care plan found that in just one year, prices on prescription drugs jumped a whopping 70 percent -- while the prices of nonprescription drugs grew only 5 percent.

The high cost of developing drugs has caused some of that increase, says David Axene, a partner in health actuarial services at Ernst & Young. But he adds, "A lot is just because drug prices are too high, and direct-to-patient advertising is driving up costs even more." Though not every health plan has seen such incredible inflation, drug prices have generally been increasing about four or five times as fast as the cost of doctor and hospital services, Axene says.

Along with drug prices, health care service has also become more expensive. Recently the balance of power has shifted away from managed care plans and toward the people who actually administer care. Back in the 1990s, HMOs succeeded in getting hospitals and doctors to cut costs. But the drive for efficiency has at times compromised care. Now that the practice of cutting costs has fallen out of favor, health care providers are demanding better pay -- and that translates into higher insurance premiums.

In addition, as the U.S. population ages, the average American needs more medical care. As a result, costs rise about 1 percent a year, Axene says.

It's no surprise then that the inflation in health care costs has boosted insurance premiums for plans offered by companies and for alternatives for the unemployed.

The COBRA Option

So what are the alternatives? The simplest option is

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COBRA, which extends the group insurance offered by an employer for up to 18 months. (It's an especially good option if you have health problems, since other insurance companies might not accept you or charge you a higher rate.)

"My experience has been that lots of times when people leave a job, if they didn't see it coming, their life starts to spin in turmoil," says Michael Boone, a certified financial planner based in Bellevue, Wash. "They don't need another decision-making process, shopping for health insurance. They might want to just get COBRA, forget about it, and revisit the issue in two or three or six months, when they have time."

Even though planners consider COBRA a good value, those who choose it should prepare for some shock. They'll have to pay 102% of the employer's cost -- the full premium, including the portion that the employer previously paid, plus a 2 percent administrative fee. As a result, in 2000, only one out of five unemployed workers eligible for COBRA took it.

Many people aren't even eligible for COBRA coverage. The ineligible include those who worked for firms with fewer than 20 employees (though many states offer their own version of COBRA to help employees of smaller firms) and those whose companies have gone bankrupt.

Health Insurance, the Cheap Version

If you're seeking an alterative to COBRA coverage, consider group plans provided by organizations associated with your profession, such as insurance offerings from American Bar Association and National Writers Union. By enabling insurers to spread risk across a pool of people, group plans tend to offer more coverage for cheaper prices than individual plans.

"To get as good a plan as your employer had would be even more expensive in the individual marketplace, because you were getting a group price," says Judy Waxman, deputy executive director at Families USA, a consumer health advocacy group.

If you're in good health and want to save money, the least expensive option is major medical coverage. The cheapest major medical plans carry high deductibles and co-pays, keeping your monthly premiums low. The downside is that you'll have to pay for office visits. But despite the lack of coverage for preventive care, major medical plans end up making financial sense for some people, says Axene. "The average person can probably afford office visits on their own, and probably a drug here or there, but can't afford a $20,000 hospital stay," he points out.

It's fairly easy to get an overview of all your options, major medical and otherwise, using Web sites such as Quotesmith.com and eHealthInsurance.com. Using information such as your age and ZIP code, these Web sites search for plans, enabling you to compare a range of premiums and types of coverage.

Quotesmith even provides an insurance company's A.M. Best rating, an independent measure of a company's financial strength. A++ is the best rating; financial planner Boone says he'd stick to companies rated at least A.

Another useful reference is the independent National Commission on Quality Assurance, a nonprofit that judges managed care outfits on criteria such as whether they have enough doctors to service patients and how well patients rate the quality of care they received. Its

Web site can generate a list of plans that serve your area using your zip code, complete with its proprietary ratings.

Since health insurance is regulated by the states rather than the federal government, state insurance commissions are another good resource, and a

map of all state insurance commissioners is available.

For example, the California Department of Managed Health Care

offers an overview of different types of health insurance plans, describing freedom-of-choice plans, PPOs and HMOs. It also lists HMOs in the state. The state of New York

provides a list of health plans broken down by county.

Some states also let you run a background check online to turn up complaints filed against a given insurer.