A friend of mine recently quit his job. The position was a contract position, and the insurance would not become effective for six months. Since he has diabetes, he really wanted to know what his options were. How could he continue to receive health care without spending a small fortune in the interim?
Of course, he began asking us about these things, and we had to be honest with him. First of all, COBRA is a very useful legal tool, if you have no better options. However, it is best to do some homework and find a reasonable insurance company. You can then purchase a short-term policy for yourself during the time that you will not otherwise be covered. COBRA can be very expensive, and since you cannot reduce the amount of coverage you have with COBRA, you may end up paying for items in your policy that you don’t need simply to maintain healthcare coverage.
Why do you need to maintain healthcare coverage? Because most policies have a clause about pre-existing conditions. The terms for “pre-existing” differ from policy to policy, so read your current policy very carefully, and your new policy very carefully before making any decisions.
For pre-existing conditions, the general rule of thumb is : If you’ve been without insurance for 30 days, any illness or condition at the time you sign your new policy is considered “pre-existing”, and thus is not covered by your current policy. Which means, that any life-long condition — such as diabetes or epilepsy — can be considered pre-existing. Once your condition is labeled pre-existing, it can be excluded from your healthcare coverage under the current policy, even if you pay your monthly premiums.
Because of his medical condition, he found that getting private insurance was going to cost him a small fortune each month. Normally we suggest that a person use a work policy from their spouse. Leaving your job constitutes a “Life Change”, and can bypass most policies’ once-per-year change of coverage clause. However, his wife does not work. He is the sole income provider for his household. Taking all of this into consideration, we definitely suggested that he take advantage of the COBRA coverage.
What is COBRA? It is an acronym for Consolidated Omnibus Budget Reconciliation Act. But that usually means nothing to laymen like us. In short, it is a continuation of benefits federal act. The part that effects us states, in short: If you are insured at work and there are more than 20 employees, they must offer the same insurance coverage you were getting under their policy for up to 18 months after your last day. Here are the catches, though:
- You cannot alter the amount of coverage you receive. If you were covered for the works before you left, then you’ll have to be covered for the works until you cancel COBRA coverage.
- If you leave the policy for any reason, you’re done. Don’t miss a payment! and don’t release yourself from the program until you are completely covered by another policy and that policy is in effect.
- You only have a very small window of thirty days from your last day to elect COBRA coverage.
- While COBRA coverage is offered to you, it does not take effect until you sign up for it, in writing.
- And the final catch: You pay 100% of the monthly premiums.
In most places, the employer graciously picks up a portion of the monthly premiums, usually from 40% to 75%. In very very rare cases, an employer will actually pay 90% or more of the monthly premiums. But if you elect COBRA coverage, you agree to take on the full monthly premiums, at your own cost. And don’t be late with your monthly payment. If you are, they can cancel you immediately, and there is no second chance to sign up again.
Just because COBRA must be offered to you, doesn’t mean you get it automatically. You must choose (in writing) to accept the COBRA coverage, and fill out the necessary paperwork. Speak with your HR department for what paperwork your particular insurance requires.
After all of this information, he chose to keep his COBRA insurance for the six months until his next insurance policy took effect. He payed over $1000/month for himself, wife and four children. It sounds like alot, but in order to prevent any “pre-existing condition” clauses, and to be prepared should something happen during the six-month window, he chose to pay the price instead of rolling the dice.
If you find yourself looking for a new position, or just an exit of your current job, be aware that COBRA exists to help you. In many cases you can find alternate forms of insurance, such as a spouse’s policy or a less expensive private label. But in some cases, COBRA really is a good alternative. It can cost you a little in the short-term, but saves your insurance history in the long term.
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