How To Keep Your Employee Health Insurance Coverage If You Lose Your Job
Employees who lose their job suddenly face a number of challenges. Aside from the loss of income and a bruised ego, a significant challenge is the termination of benefits like health insurance. For people who carry health insurance coverage for their whole families through an employer, the sudden loss of a job means that their spouses and children have no coverage in the case of illness or emergency. Fortunately, there are ways employees can continue to carry health insurance in the event that they lose their jobs.
There's a federal program in place that enables terminated employees to maintain health insurance coverage for up to 18 months following separation from their employer. According to the U.S. Department of Labor, the Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers to offer a continuation of coverage to separated employees and their dependents under the following circumstances:
- Voluntary or involuntary job loss
- Reduction in work hours
- Other major life events
- Transition between jobs
COBRA applies to employers who sponsor group health insurance coverage for 20 or more employees.
In accordance with COBRA, when an employee leaves a company, her employer must give her a written notice of the ability to continue her group health insurance. To qualify for COBRA coverage, employees must have been enrolled in the company's group plan prior to termination and the health insurance plan must remain in effect for active employees.
Electing COBRA Coverage
According to the U.S. Department of Labor, when employment is terminated or a qualifying event occurs that would cause an employee or dependent to lose health coverage, the employer must notify the health plan administrator within 30 days. If a qualifying event involves divorce, death or legal separation from the covered employee, the qualified beneficiary must notify the plan administrator within 60 days.
The plan administrator will then send an election notice to the employee or qualified beneficiary within 14 days of being notified. From this point, the employee or beneficiary has 60 days to decide if they wish to elect COBRA coverage.
An employee that chooses to enroll in COBRA coverage must pay the initial premium within 45 days.
Key COBRA Considerations
People are typically shocked by the cost of COBRA coverage. When a person elects COBRA coverage, they're required to pay the full premium. The employer no longer contributes to coverage because the employee or their dependent has separated from the company. According to the Department of Labor, individuals who enroll in COBRA coverage may be required to pay up to 102 percent of the plan costs. This can be prohibitively expensive depending on the cost of the plan and the employee’s income.
The benefits employees receive under COBRA do not differ from those received as an employee and individuals cannot be rejected or charged more due to health conditions or history.
Qualifying employees and beneficiaries are able to maintain their current health insurance through COBRA for up to 18 months.
Other Health Coverage Options
According to the personal finance magazine Kiplinger, COBRA coverage isn't always the wisest choice. Group health plans tend to come with high costs, most of which (about 75 percent) are typically covered by the employer.
Today, thanks in part to the growing self-employed sector, separated employees and dependents can opt to purchase individual health coverage on their own in lieu of continuing group coverage through COBRA. Many find this option to be cheaper than enrolling in COBRA.
Comparing Costs And Coverage
Kiplinger.com reports that the average costs for COBRA coverage range from about $4,700 annually for individual coverage to about $12,700 annually to continue coverage for an entire family.
Average costs for individual health insurance policies are significantly less expensive. Kiplinger.com estimates average costs for individual health insurance plans purchased through eHealthInsurance.com range from about $1,900 annually for an individual and $4,400 for a family. Rates may vary based on coverage, deductibles and copay amounts.
Comparing and evaluating individual health plans can be complex for many families. Plans vary in deductible amounts and excluded procedures. Prenatal care, for example, may not be included unless an additional rider is purchased.
Pre-Existing Conditions And Other Considerations
Unlike COBRA, individual plan administrators can deny coverage to an individual based on pre-existing health conditions and they can also charge higher premiums for high-risk individuals. However, when certain parts of the Affordable Care Act go into effect in 2014, they will make it illegal for insurers to deny coverage or increase premiums for pre-existing conditions or high-risk persons. You should note that there is some risk that Congress will overturn or modify the Affordable Care Act which could reverse these changes in coverage requirements.
In the meantime, the U.S. Government has created its own Pre-Existing Condition Insurance Plan (PCIP) to help people with pre-existing conditions get coverage. States may choose to administer the plan and the U.S. Department of Health and Human Services offers the plan in states that don't. To qualify, an individual must meet the following criteria:
- Individuals must have been denied coverage based on a pre-existing condition by a traditional health insurance provider.
- Individuals must have been uninsured for the past six months or longer.
Although COBRA coverage can be expensive, it is important to realize that it is available to most people who lose their job. This is especially important to those who have serious medical issues. However, you should also know that an individual health insurance policy is another option. If you lose your job, compare the costs of COBRA with the costs of buying an individual insurance policy. This will help you to make an informed choice about how to maintain health insurance coverage.