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Health Insurance: A Guide to Continued Coverage after a Job Loss

by Lorraine Watkins

Layoffs are scary. Voluntarily leaving a job can be exhilarating and frightening. You lose not only your income, but the other benefits that come with it: paid time off and participation in 401(k) and insurance programs. Why should you think seriously about health insurance when leaving a job?

Don't Wait Until You Are Sick
Should you become ill while you do not have insurance, and you then try to purchase a policy, even if you can find coverage you can afford, you may have to wait up to 36 months to be covered, or you may be denied coverage altogether. So, if health insurance is important to you, here are some options to keep yourself and others on your plan covered after separating from your employer:

You may be eligible to continue your existing group coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) as long as you:

  • were enrolled in a health plan before your termination
  • were not terminated for gross misconduct
AND your former employer has:
  • not gone bankrupt
  • not eliminated its group health care plan for active employees
  • had the equivalent of 20 or more employees on 50 percent of its business days in the previous calendar year
Employers who meet the above criteria are required by law to offer former employees continuation of their health insurance coverage--but they are not required to pay for it. If you elect to continue your health insurance coverage, you will continue to pay your portion of the premium and your former employer's portion as well, and up to a two percent administration fee, unless you negotiate otherwise.

How COBRA Works
If you are eligible for COBRA, your employer must provide the paperwork to you within 14 days of its notification to the plan administrator of your termination. You have 60 days to complete and return the documents. Your first payment is due within 45 days of the day you sign your COBRA election documents. Because your first payment covers you back to the point when your regular coverage ended (usually the end of the month in which you were last employed), it may be more than your ongoing payments.

COBRA determines the minimum length of coverage which is 18 months, and in some circumstances, up to 36 months. Your former employer's plan may choose a longer period of coverage than COBRA mandates. You are eligible as long your former employer continues offering group health insurance to active employees and your premiums are paid on time. You cannot miss a payment or two and then resume coverage. If you receive a severance package, you might consider pre-paying several months of COBRA.

What to Do if You Can't Get COBRA
If you want insurance but can't get continuation coverage under COBRA, you still have a wide range of options:

When looking for insurance on your own, search for policies that allow you to join an existing group policy. Health insurance through an affiliation may be robust and competitively priced, it might offer far less coverage than what you had through your former employer's plan, or it may only offer discounts on visits to a doctor, dentist, or chiropractor, or for prescription drugs.

Nevertheless, affiliate plans are worth investigating because insurance through them is usually less expensive than an individual policy. Check for insurance quotes through trade groups, unions, and affiliations such as AARP.

Another possibility is to become a self-employed sales representative of a company that offers the opportunity to purchase at least some form of insurance or discounts through its group plan. Avon and Melaleuca are two examples of companies that provide this type of coverage option.

Individual Plans
Although usually the most expensive of the insurance options, you might want to consider getting an individual policy. It is one way to avoid possible financial ruin if you, or anyone covered by you, experience a catastrophic health event, and it will lessen the time you might have to wait for full coverage under your next employer's plan.

Government Sponsored Health Care Coverage
If you are unable to purchase any form of group or individual insurance, you can investigate your eligibility for health care coverage through the government. Medicare is a federal program for people 65 and older and for people with some types of disabilities. Medicaid is a federal program administered by each state for those who cannot afford medical care. But age and poverty alone do not qualify people to receive help from the government. If you end up in an emergency room without insurance, do not assume a government program will pay your bill. In order to be covered by Medicare or Medicaid, you must apply to those programs in advance of receiving care.

U.S. Department of Labor
Insurance Information Institute

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