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Health insurance continuation after job termination is a tricky subject with serious implications.

Having your coverage expire without a replacement can result in large unpayable medical bills. You do not want to put your financial life at stake just so that you or one of your family members can get care in a hospital or from a doctor.

Unfortunately, losing the employer contribution towards your benefit often results in sharply higher costs. In addition, a season of unemployment could make it more difficult to afford the premiums.

Follow this outline to make your healthcare dollars stretch further when leaving a job.

Health Insurance After Termination

How long is health insurance active after job termination before you have to find an alternative? Your employer pays the premiums one month in advance – not in arrears.

Therefore, your plan could remain active to up to 30 days after leaving your job – depending on timing and the policies outlined in the employee handbook of your former company. Compare the cost of an individual plan (with possible premium subsidies) to the cost of COBRA (without employer contribution) to determine next steps once this period expires.

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After Quitting

Your health insurance can last for up to one month after quitting if you make your resignation effective on the first day of the month. Keep this in mind since you are in control of when you leave your job. Make the timing work in your favor by giving your employer just the right amount of notice.

Read your employee handbook carefully to learn about your employer’s policy for employees who resign their position – before you quit. Also, make sure you learn about your continuation options (see below) before submitting your resignation.

Hopefully, you have a new job lined up before quitting your old one. Many employers impose a probationary period before their health benefits kick in for newly hired workers. The probationary period could last from 1 to 6 months. Be prepared.

After Layoff

The length of time before health insurance expires after being laid off follows the same principle. The moment your employment ends, you cease being an active member of the group. Coverage expires 1 to 30 days later.

However, the amount you must pay to continue via COBRA can vary with the severance package.

  • A severance package is the pay and benefits employees receive when they leave employment at a company following a reduction in force or company-wide layoff.
  • Your severance package could include an ongoing employer contribution towards the insurance premiums for a defined number of months.

After Firing

It is common for employees to lose health insurance shortly after begin fired for cause. Employers are in control of timing when they terminate your employment for something you did wrong, or because you took an extended leave of absence.

Being fired could come as a surprise and leave your scrambling to find coverage. Fortunately, your plan could remain active for up to 30 days, and you may be able to opt into COBRA retroactively – if you qualify. However, COBRA rules allow companies to exclude people fired due to gross misconduct.

People fired for gross misconduct may need to find an alternative. Research the state-based continuation laws or explore policies available in the individual market.

How Health Insurance Continuation Works

It is important to learn how health insurance continuation works so that you can find the most affordable option to extend coverage after employment termination. Keep these four thoughts in mind as you weigh your options.

  1. COBRA does not cover all employers and workers
  2. State laws may extend protections to more people
  3. The price of continuing group coverage is often shockingly high
    1. You lose your employer premium contribution
    2. You could be eligible for a tax credit
      1. Job loss due to global trade
      2. Eligible under Trade Adjustment Assistance (TAA)
    3. Loss of group insurance is a qualifying life event
      1. You can enroll in your spouse’s plan right away
      2. You can purchase individual coverage right away

Individual Policies

Buying individual health insurance is a viable alternative to continuing your employer’s group plan since the loss of this coverage is a qualifying life event. You may be able to find a far more affordable option if you qualify for premium subsidies, or you pick a lower cost design.
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Premiums

You must pay 100% to 102% of the premiums yourself to continue your group plan. People are often unaware of how much their employer contributes to their health benefits until they see the COBRA price tag.

You could pay as little as 10% of the premiums for an individual policy. Income-based subsidies can lower the amount you must pay in order to make it affordable.

Design

Employer-based group plans sometimes offer gold-plated benefits as an incentive for employees to join and stay with a company. A healthy young adult might not need all the bells and whistles.

Individual policies with large deductibles and skinny networks might cost less to purchase and make more sense. Why pay for benefits that you might not need in the next few months?

COBRA

The Consolidated Omnibus Budget Reconciliation Act (COBRA) rules require group health plans to provide a temporary continuation of coverage that otherwise might end. Keep in mind that you may not qualify for this benefit. COBRA does not regulate certain groups.

  • Private small businesses with 19 or fewer employees
  • Federal government agencies and departments
  • Churches and church-related organizations

COBRA starts the day after your group plan ends even though you do not have to make a decision right away or send payment for months.

Length

COBRA can last up to 18 to 36 months depending on the qualifying reason and dependent beneficiaries but can also end much sooner. There is no single correct answer.

  • 18 months for an employee
    • Reduction in hours worked
    • Termination for other than gross misconduct
  • 36 months for qualified beneficiaries
    • Reduction in hours worked
    • Termination for other than gross misconduct
    • An employee becomes entitled to Medicare
    • Divorce or legal separation of the spouse
    • Death of the covered employee
  • 11 extra months for disability maxing out at 29

Other exceptions may affect how long COBRA lasts. For example, each of these reasons could shorten the length of time you can participate.

  • An adult child reaches the age of 26
  • Premiums go unpaid
  • Beneficiary begins new group coverage
  • The beneficiary becomes eligible for Medicaid
  • The employer stops offering group coverage
  • Participant commits insurance fraud

Retroactive

You can choose to elect and pay for COBRA retroactively. This allows you to go uncovered for a short period and then opt-in if you have a medical event after-the-fact. The savings could be significant if you remain healthy.

Three separate COBRA rules permit retroactive participation going back up to 105 days.

  1. Have 60 days to complete and submit the election form counting from the later of two dates
    1. Date you received the election notice
    2. Date you lost coverage
  2. Make the initial premium payment within 45 days of the date you postmark the election form
  3. Have a 30-day grace period for payments relating to successive periods of coverage

Reinstatement

You can reinstate COBRA only during the initial 60-day enrollment window. For example, if you waive your rights and then change your mind, you can reinstate within this timeframe. The coverage begins the day you revoke the previous waiver.

However, reinstatement rights end 60 days after the election period begins.

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State Laws

State-based health insurance continuation laws may fill some of the gaps in COBRA coverage noted earlier. Also, federal government employees have protections under a similar law.

The state laws seek to supplement COBRA. Each state may handle some or all of these scenarios in unique ways.

  • A larger number of affected employers based on employee size
  • Limits on eligible employees based on hours worked
  • Varying lengths for eligible employees
  • Varying lengths for qualified beneficiaries
  • Expanded definitions for qualifying events
  • Notification rules for employers
  • Length of time for an employee to enroll
  • Special circumstances such as domestic abuse

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