Medical Insurance

Terminating Employment and COBRA Coverage

If you're going directly to another employer, chances are you'll elect to join the new company health insurance plan. However, you may not be eligible for plan benefits on your first day of employment. You might have to wait up to three or six months. In some states, you might be eligible to apply for interim medical coverage.

You can elect COBRA coverage through your existing employer. COBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1985. It requires mandatory continuation of health benefits at group rates for employees and their dependents who would otherwise lose their group health coverage. Employers exempt from this requirement are small employer plans (fewer than 20 employees), church plans, and federal government plans. Here are a few details about COBRA coverage:

      • COBRA benefits last for 18 months. If the qualifying event is the employee's death, the employee's divorce or legal separation, or the dependent's loss of dependent status under the plan, COBRA benefits last for 36 months

      • The premium cost charged to the employee cannot exceed 102% of the cost to the plan for coverage. The cost of COBRA coverage is usually high because the newly unemployed individual pays the entire cost of the insurance (employers usually pay a significant portion of healthcare premiums for employees). 

      • The benefit coverage must be the same under COBRA as the employee had prior to the qualifying event.

      • There is no evidence of insurability conditions.

Qualifying events include the following:

  • Death of the employee
  • Termination of employment, other than for gross misconduct
  • Reduced work hours
  • Divorce or legal separation
  • A dependent child no longer meets the dependency requirements, e.g., graduates from college

Qualifying Event

Continuation Period

 

Child

Spouse

Employee

Termination of employment (not gross misconduct)

18 months

18 months

18 months

Reduced work hours

18 months

18 months

18 months

Death of employee

36 months

36 months

 

Divorce/legal separation

36 months

36 months

 

Minor child's change in status

36 months

   

Employees and their dependents must be notified in writing of their eligibility for COBRA coverage. The employee then has 60 days from the later of the date of the COBRA notice or the date of the qualifying event to elect coverage. If you become divorced, legally separated, or your child no longer qualifies as a dependent, you must notify your human resources department within 60 days if you or your dependents want to continue coverage.

IMPORTANT NOTE: If you're leaving your present job to work for a new employer or to start your own business, you may want to consider electing COBRA coverage. The health plan available from your new employer may have a waiting period for coverage under the plan. Even if you are eligible for the new plan on your first day of employment or shortly thereafter, the new company's plan might not cover you for preexisting conditions for up to 18 months. Preexisting condition policies vary from employer to employer. However, by law, any exclusion period must generally be reduced by the length of time you had prior health plan coverage. In addition, depending on how your plan is funded, state mandated rules may prevail. If you're thinking of purchasing private group or individual medical insurance, check with your local state insurance department to help you determine if you need COBRA coverage.

 

Obviously, carrying two plans can be quite costly. If you do need COBRA coverage, you should elect it only if your out-of-pocket cost to treat the preexisting condition exceeds the cost of the additional premium.

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