Former employees recently let go from their job may find themselves wondering what options they have to continue their employer provided health insurance. Generally, an employee is allowed to continue their coverage from loss of employment due to voluntary or involuntary termination, disability, reductions in hours, death, divorce, or becoming eligible for Medicare.
The length of time an individual has to remain on COBRA depends on the reason why they lost coverage from their employer. For example, if an employee is terminated either voluntarily or involuntarily he or she will have up to 18 months of coverage. In the event of death, divorce or becoming eligible for Medicare, the length of time is 36 months.
In the event an employee becomes disabled, the length of time is 29 months. The reason for such an odd number is that in order to become eligible for Medicare from disability the individual must be disabled for 24 months. Then, the elimination period (time deductible) for Medicare to pay is 5 months.
Generally, the employee will pay the full costs of the insurance plus an additional 2% administrative fee. The reason the employer charges this fee is due to the expense of sending out statements, paperwork and general administrative functions. The full costs of the health insurance include what the employer was paying for previously and the employee’s costs.
For example, if the employer’s portion of coverage was $800 and the employee’s portion was $400, the total cost to the separated employee is $1,224 ($800 + $400 + $24 admin fee).
Although COBRA is offered for employers with 20 full time employees or 20 full time equivalents it may not be the cheapest option. Individuals may elect COBRA or find coverage through the Marketplace. The Marketplace will have different options and will likely be a less expensive option. An individual will have to consider not only the premiums, but the type of coverage they are giving up through COBRA (their former employer’s plan) and new coverage with another plan.
Some points to consider are drug coverage, deductibles, co-pays, out of pocket limits, dental, and whether the individual can stay with their current doctor and hospital. Other considerations include moving to a spouse’s plan or starting an HSA and taking advantage of the tax benefits.
More information on COBRA can be found here.
Sterling Raskie, MSFS, CFP®, ChFC®
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