For many people, one of the worst things about losing their job is losing their health insurance, and the impact can be something of a shock, since employees normally remain oblivious of exactly how much money their companies have been paying for their coverage until they get stuck with the tab.
But although it would seem to be the worst possible time to accept hefty monthly obligations to pay for your health benefits out of your own pocket, experts say that in some cases that’s exactly what the recently unemployed should do—that is, if they have access to the plan provided by the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986
According to the act, employees that have lost their jobs can keep their health insurance policy by taking over the premium’s payments, as long as the individual was not fired for gross misconduct and was one of at least 20 covered employees at the time of the job’s termination.
And while paying for your own health plan might seem a poor consolation, it can prove to be a valuable option since the rates employers pay are normally subject to group discounts.
This is important, said Jerry Geisel, editor at large at Business Insurance Magazine, not so much because of the potential savings it could mean for the individual but because of the type of benefits these policies provide.
“(A COBRA plan) would certainly provide more generous coverage, richer benefits, than you can get on the personalized or individual market,” Geisel said. “Whether it’s more or less expensive depends on the policy you find in the individual market, but (COBRA) ensures you keep the same health plan, so you have the same network providers”.
In fact, this can be extremely helpful if the former employee or one of his dependants is dealing with a serious illness. “Let’s say you have a lot of medical problems,” Geisel said. “It might be extraordinarily expensive to get the same kind of coverage in the individual market.”
The cost of COBRA
Unfortunately, a COBRA plan is quite expensive. Rates vary depending on the type of coverage, but the typical rate for individual coverage is $400 per month and $1,200 for family coverage.
However, the federal government included a provision in the economic stimulus package that subsidizes up to 65% of the COBRA premiums for 15 months to those that have lost their jobs in the midst of the economic crisis.
These subsidies are due to expire on March, but industry analysts believe Congress is likely to grant an extension.
Don’t fall into the gap
But even with these subsides, the cost of a COBRA plan can be very expensive, especially for individuals that have just lost their sources of income.
Elizabeth H. Latchana, an attorney specialized in labor law with the firm Fraser Trebilcock Davis & Dunlap, P.C., said that there are cases where taking the COBRA plan might not be necessary, for example, if the person can get coverage through his or her spouse’s employer.
But, “if there are no other options available for the individual terminated, and they really need healthcare coverage, then, they should go ahead and take (the COBRA plan),” said Latchana.
In fact, “there could be ramifications for not taking COBRA. If there is a 63 day gap in healthcare coverage, when they finally do get coverage, that new insurance company can impose preexisting conditions exclusion on them, which means that if they are predisposed to certain types of illness, of if they have cancer, for example, the new health plan can say, ‘we are not covering that,’” she said.
