Understanding COBRA and Other Health Insurance Options if you Quit or Lose Your Job

As the economy continues to struggle back from the recession, employers are still cutting jobs or at least holding down their hiring levels. That means the strain is continuing for people who have been out of work for many months as well as those who have recently lost their jobs.



Even if your job seems secure for now, it’s a good idea to have a mental game plan for your health coverage if your employment situation happens. Things you should consider:


Get some general financial advice right now: While health insurance is one of the biggest concerns for the unemployed, it’s a good idea to take a look at your overall finances if your income is under threat. While you’re still working, talk to a trained financial planner about immediate things you can do to conserve money and protect your investments. To find a financial planner in your area, go to www.plannersearch.org.


Research COBRA: The Consolidated Omnibus Budget Reconciliation Act, better known as COBRA, gives workers the right to continue coverage under their employers' group plans after they change or lose jobs. The cost of health coverage under COBRA for displaced workers is usually more expensive than what you were paying while you were working. That’s because the employer pays a part of the premium for active employees, while displaced workers are required to pay the entire premium themselves. Unfortunately, the special 65 percent premium tax credit that had been offered to any COBRA recipient starting Feb. 17, 2009 expired May 31 this year and wasn’t renewed for anyone terminated since. According to a report from Hewitt Associates in August 2010, U.S. workers pay an average $8,800 a year in premium expense without the tax credit. Yet for employees who have no other affordable options, coverage under COBRA can be continued for up to 18 months, and up to 36 months when loss of coverage is due to divorce or disability. One thing to make sure is that you need to sign up for COBRA within 60 days of the loss of your job or another event qualified under the law.

If you’re retired or over 55, check on the Health Coverage Tax Credit: The government will pay 80 percent of your health premiums each month as part of the Health Coverage Tax Credit, available to people receiving pension payments from the Pension Benefits Guarantee Board, aged 55 and older and not enrolled in Medicare, or enrolled in a qualified health plan, including COBRA, a state-qualified health plan or coverage under your spouse’s plan. For more detail, contact your tax advisor or visit the IRS website.


Check the price of short-term coverage…Some insurers offer coverage from one month to a year, and it’s a good idea to compare the cost of that coverage against what you’d pay for COBRA. But keep in mind that any insurer you choose in this category should have a clean record with your state’s department of insurance, and it’s also a good idea to check their rating with A.M. Best.


…against the price of long-term catastrophic coverage: Catastrophic policies are intended to cover medical expenses that are extremely serious. To keep prices relatively low, policyholders must pay a high deductible, anywhere from a few hundred dollars to many thousands, before the coverage will kick in. However, many insurers offer high-deductible policies that do offer some first-dollar coverage on routine procedures like OB-GYN visits or X-rays. Again, check the safety ratings and see what state insurance department officials have to say about their business practices.


Medicare: While this is the government’s healthcare program for individuals 65 and up, it also covers people of all ages with specific disabilities. If you cannot get insurance after you lose your job and can prove a specific disability, you might consider applying for Medicare.


Medicaid: If you’ve reached near poverty-level income and asset qualifications, you may qualify for this joint federal-state health insurance program for individuals. States usually provide Medicaid for individuals who receive federally funded cash assistance payments, such as Social Security. Poverty income levels do vary by state, so you will have to check your state’s Medicaid agency, social service or welfare office.

September 2010 — This column is provided by the Financial Planning Association® (FPA®) of Puget Sound, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Puget Sound if you use this column in whole or in part.

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