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.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

With Open Enrollment on the Way, Check Your Health and Benefits Needs Now

There was a time when the open enrollment period for health insurance, retirement options and other benefits was a fairly straightforward, stress-free period where you could see what additions your employer was making to your health and other fringe benefits in an otherwise healthy economy.


Today, open enrollment is largely about reading the fine print and determining how you will manage your own out-of-pocket costs and making up any shortfalls in retirement savings.

According to the Society of Human Resource Management’s 2010 Employee Benefits Survey released in June, 72 percent of HR professionals said the benefits offerings at their companies had been affected “in some way” due to the economic downturn that began in 2008. And while 79 percent said they were reviewing their benefits offerings annually, 10 percent reported that they were reviewing them more than once a year.

And in one notable SHRM statistic, 10 percent of respondents said they plan to reduce or eliminate employer match for 401(k)s in the coming year.

That means that for the best benefit deals in the future, employees are going to have to become better shoppers, and where employers are offering incentives for losing weight, quitting smoking or getting certain chronic health situations under control, employees need to change behavior to save more money.

Employee benefits are a very important component of an individual’s financial plan, and in two-income households, they should be coordinated. That’s why it makes sense to talk about your benefit choices with a financial planner to see how such choices fit into your overall financial strategy.

Some critical issues you should check before you choose your benefits for the coming year:

If your company retirement plan is changing, get some help: Most companies allow more than one chance per year to adjust the holdings in 401(k) retirement accounts, but it’s important to get help if you’re planning to change allocations to see if they still fit your age, risk tolerance and the standard of retirement you want. Get some advice, and obviously, if you’re not a member of your employer’s 401(k) or 403(b) plan, try to join, particularly if your employer matches your contribution. Also, if your company cut back on its 401(k) matching during the recession, see if they plan to restore that contribution after the economy improves. You might want to review whether to stay with a company that offers benefits that are below that of its competitors.

Take a health inventory: As you’re reviewing health plan choices, think of all the health issues you’ve experienced throughout the year. It could be a diagnosis of a chronic disease, the birth of a child or the need to place a new spouse or partner on your coverage. A new spouse or child can usually be added with proper notice throughout the year, but open enrollment is a good time to review all current and future situations. If you’re healthy, you might want to opt for a lower-premium plan that requires higher co-pays or deductibles and try to put more into your retirement savings. Just try not to choose any plan that limits lifetime benefits to $1 million or less – you’d be surprised how little time it takes to get there for an accident or serious illness.

Review your prescription coverage: You should look at your prescription needs and find the best insurance choice to cover them. While you may have a co-pay of $5 to $10 for generic drugs, will your plan pay for a brand-name drug that you really need, or will you get stuck with a co-pay of $50 or more? Make sure you understand the tier system within your pharmaceutical plan and pick the right one for you based on your current or expected needs.

Understand FSA/HSA options: A flexible spending account (FSA) is an account some employers offer so workers can deposit funds on a pre-tax basis to pay their out-of-pocket health and dependent care costs. However, workers need to make a good estimate on the funds they’ll use by year-end because excess funds can’t be carried over. Health Savings Accounts (HSAs) allow workers to save pre-tax dollars for health care costs without the "use it or lose it" restrictions in FSAs, though they require the enrollment in a qualified high-deductible health plan, which more companies are moving toward. These dollars often can be directed into different investment accounts and used on a tax-favored basis in retirement. In 2010, individuals can deposit up to $3,050 in their HSA, and those with family coverage can deposit up to $6,150. Individuals above age 55 can add another $1,000 in contribution on both individual and family coverage.

See if you can buy additional coverage: Open enrollment can offer life insurance coverage – or increases in coverage and sometimes long-term care insurance without a medical exam. Check that the insurance providers are highly rated in A.M. Best, and if they’re well ranked, take the coverage and find out if you can keep it going if you leave the company.

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 Sound if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

Seattle Financial Planning Day

The City of Seattle, Seattle King County Asset Building Collaborative and the Financial Planning Association of Puget Sound invite you to participate as a volunteer at the Seattle Financial Planning Day on Saturday, October 23, 2010 at North Seattle Community College.

Seattle Financial Planning Day is being organized in partnership with City of Seattle, CFP Board, Financial Planning Association, Foundation for Financial Planning, and the U.S. Conference of Mayors. The event is part of the national Financial Planning Days initiative, a first-of-its kind effort involving city governments nationwide and thousands of financial planners in an effort to provide free financial education and programming to underserved populations throughout the U.S.

The concept is simple - experts from the Financial Planning Association® and highly qualified CERTIFIED FINANCIAL PLANNER™ professionals will all volunteer to meet one-on-one with local residents to offer personalized financial planning information and to present classroom style educational workshops addressing key financial planning topics.

Questions, or if you would like to volunteer, please call 206.686.4372

Attendees: www.FinancialPlanningDays.org/Seattle
Volunteer: www.FinancialPlanningDays.org/SeattleVolunteer
Volunteer Registration: www.FinancialPlanningDays.org/SeattleVolunteerReg