What to Know When Losing Job-Based Health Insurance

COBRA and the ACA provide lots of options

When you lose employer-sponsored insurance, you can get an individual plan, or you may be able to elect COBRA
Losing access to an employer-sponsored health plan? You've got options and time, but there are some important deadlines. Btownchris/DigitalVision Vectors/Getty Images

Most non-elderly Americans get their health insurance from an employer. Although the ACA has made individual health insurance much more accessible than it was prior to 2014, the individual market is still a very small segment of the population.

But although employer-sponsored insurance is the most common form of coverage, the drawback is that the coverage is linked to continued employment at the same company.

If you leave your job or are laid off, you've got some decisions to make in terms of health insurance. Here's what you need to know.

COBRA might be an option

For the last three decades, the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) has been allowing workers to continue their group health insurance benefits for a limited period of time after they would otherwise have lost access to the plan.

Under federal law, COBRA is available for up to 18 months in most circumstances, if your employer has 20 or more employees. And in many states, continuation is also available for workers of smaller firms, although the amount of time you can keep the coverage varies considerably from one state to another.

COBRA lets you keep the same coverage you had while you were working, but you're responsible for the entire premium - including the portion that your employer used to pay - plus up to 2% extra for administrative costs.

It can be shockingly expensive, particularly for workers who are used to coverage that was funded in large part by the employer.

Before the ACA, COBRA was sometimes the only option

Prior to 2014, COBRA was often the best option, despite the sticker shock. For people with pre-existing conditions, coverage in the individual market was often unavailable due to medical underwriting.

And in many states, plans available in the individual market did not cover maternity at all prior to 2014, making COBRA a better option for someone who was contemplating a pregnancy soon after leaving a job (it was also the only option for someone who was currently pregnant when the employer-sponsored coverage ended, as pregnancy resulted in coverage denials in the individual market in nearly every state prior to 2014, regardless of whether the plan offered maternity benefits).

But while COBRA is still an option, the ACA has opened up many more options for people who lose access to an employer-sponsored plan. The full range of plans in the individual market - both on and off-exchange - are available during a special enrollment period that begins 60 days prior to the loss of coverage, and extends for 60 days afterward. If you get a plan in the exchange, you might qualify for a subsidy to offset the premiums. And medical underwriting is no longer used, which means pre-existing conditions are no longer an obstacle to obtaining coverage.

There are still reasons you might want to elect COBRA instead of picking a plan in the individual market - including the fact that a plan with a similar network might be tough to find in the individual market.

But the decision is yours, regardless of your medical history or coverage needs.

You can take your time

You've got 60 days to elect COBRA, starting either the date your plan would otherwise terminate, or the date you receive the COBRA election paperwork, whichever is later. If you end up needing healthcare during that 60-day window, you can sign up for COBRA and your coverage will be retroactive to the first day you would have otherwise been uninsured - ie, you won't have any gap in coverage. That would mean you'd have to pay retroactive COBRA premiums as well, but at least you wouldn't be left without a coverage option when you need care.

You've also got 60 days from when your employer-sponsored coverage ends to enroll in a new plan in the individual market. That coverage would NOT be retroactive, but the special enrollment period that's triggered by loss of other coverage allows you to enroll at any point during the month (while you're in your special enrollment period) and have coverage effective the first of the following month. Note that this is different from the normal effective date rules and also different from the effective date rules for most of the other qualifying events, which typically require you to enroll by the 15th of the month to get coverage the first of the following month.

And there's no penalty under the ACA for going without health insurance for two months (if you go three months or longer without coverage, there is a penalty).

So if you want to pick a new plan in the individual market (or if you're switching to a new job that offers health insurance), and if you also have an option to elect COBRA, you've got some time to make up your mind and enroll in a new plan. As long as your new plan is effective no more than 60 days after your COBRA election period begins, your fallback during the time you're uninsured is that you have the option to retroactively elect COBRA and effectively have no gap in coverage at all, as long as you're able to pay the retroactive premiums for COBRA.

But you can't wait too long

Once your 60-day window to elect COBRA ends, it's gone forever. You won't have another option to enroll in the plan you used to have from your employer. And once your special enrollment period in the individual market ends, you won't have another option to get coverage in the individual market until the next open enrollment period (for coverage that won't take effect until the following year).

So while you've got some time to figure out your options after you lose access to an employer-sponsored health insurance plan, you've got to get everything sorted out within 60 days.

If you're switching to a new job that will offer you health insurance, you can opt for a short-term health insurance plan to bridge the gap between plans, although it's important to note that short-term plans do not count as minimum essential coverage under the ACA, and you'll still be subject to the ACA's penalty if you rely on short-term insurance for three or more months. You could instead opt for an ACA-compliant plan in the individual market to bridge the gap, and cancel it when your new employer-sponsored plan takes effect.

If you're eligible for Medicaid (which is more likely than it was in the past, thanks to the ACA's expansion of Medicaid in 30 states and DC), you can enroll at any point during the year.

If you've got questions, speak with someone from your human resources department, or a broker or navigator in your community. But don't delay - you'll want to make sure you've got your plan of action figured out before your enrollment windows close.

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