Understanding COBRA Health Coverage Continuation

Dear, Anita,

I am leaving my current job for a better position. I am confused about the gap between when my old company’s health care policy stops, and when my new company’s benefits will kick in. I’ve heard about Cobra insurance.

Dear, Leery about Lapses,

First, congratulations on your new position! Health insurance coverage often continues until the last day of the month in which employment is ending, but it depends on how the plan was set up. In your documentation, look under “termination of coverage” or a similar title. You may also want to check with your current human resources representative.

CobraCOBRA continuing health coverage is not just for snake bites! The acronym stands for Consolidated Omnibus Budget Reconciliation Act, which gives workers and their families who lose their health benefits the option to continue, for a period, the group plan in which they were enrolled. The qualifying reason for losing your health care coverage could be voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events.

Your employer must provide you with a continuation notice by mail within 14 days after the qualifying event. You must opt in to the COBRA coverage within 60 days. Be forewarned: your premium may be much higher than the amount that has been taken out of your paycheck, as most employers subsidize insurance coverage. While there is no law for how much an employer must contribute to health care premiums, your deduction is generally just a portion of the total cost. COBRA premiums can be up to 102 percent of the cost of the plan.

COBRA coverage generally lasts for up to 18 months. In your situation, you’ll probably only need it until you are eligible for your new group plan. Even though it is expensive, be sure not to go without coverage. With the Affordable Care Act, beginning in 2014, you could face fines or penalties for letting your health insurance lapse.

Pediatrician

There are alternatives to COBRA. You may want to research short-term health insurance, which is expensive, but sometimes more affordable than COBRA. If your eligibility waiting period is long, or if you are unemployed with no job in sight, you may wish to look into major medical insurance (sometimes dramatically called catastrophic coverage). Major medical policies have a high deductible and cover serious medical expenses like ER visits, surgeries, and hospital stays, but not things like routine visits to your family doctor.  If you have a pre-existing condition, however, you may have to bite the bullet with COBRA, at least until Obamacare changes go into effect January 1, 2014. After that date, there may be a question about whether short-term and major medical will be creditable plans. You can check out the insurance marketplace website created by the ACA, healthcare.gov, to see health insurance plans for your area.

For more specifics on COBRA, visit the Department of Labor website.

Readers: Have you used COBRA continuing health coverage, or did you find a lower-cost alternative?

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Obamacare Effects: Employers

A reader writes…

Hi, Anita:

I am a small business owner with about 45 employees and have some questions about Obamacare. I have heard a lot of buzz about the subject but not much concrete information about the effects of its implementation. Can you help shed some light on how my business and I need to adapt to these changes in the law?

Dear, Unsure About Obamacare:Dr_Woman

The Patient Protection and Affordable Care Act, also known as Obamacare, has been on the minds of business owners and  managers across the country. Though the next round of changes isn’t scheduled to begin until January 1, 2014 (can you believe we are halfway through May already!), now is the time to get the facts straight and figure out what steps you need to take to prepare. Below are some basic points all employers and managers need to keep in mind:

  • The Affordable Care Act applies only to employers that have 50 or more employees or full-time equivalents. Because you have 45 employees, you will not be required to “pay” (a $2,000 penalty for each employee after the first 30 not covered by insurance) or “play” (and provide coverage for each of your full-time-equivalent employees) come 2014. However, if your business grows and you need to add 5 or more full-time employees, you will be subject to these rules. Note that “50 full-time-equivalent employees” means that the total hours among all full- and part-time employees equals the amount of hours worked by 50 full-time employees.
  • State exchanges will provide individuals and small employers (those with less than 200 employees) a marketplace to purchase group health coverage plans.
  • Comprehensive health plans used by employers to leverage employment deals and keep the best talent on staff are subject to an additional tax. In 2016, health benefits that are valued at $10,200 for single coverage or $27,500 for family coverage will be taxed at 40%.
  • If the health care plan you offer your employees is too expensive and exceeds 9.5% of their income, you will be subject to a hefty fine. This piece is a growing concern for employers like manufacturing firms, restaurants, and retail establishments that offer positions at a lower wage. Employers will be facing a penalty of $3,000 if the plan is deemed unaffordable or inadequate.

If your head is swimming, you’re not alone. It’s a complex law but an important one for everyone to understand, especially you as a business owner. Because I’ve also received questions about Obamacare from employees and job seekers, I’m going to be writing a series of posts on this subject over the next couple of weeks. So check back next Tuesday!

In the meantime, you might want to watch the video below, in which CNN medical correspondent Elizabeth Cohen explains which parts of health care have changed or will change soon as a result of Obama’s health care reform.

Stay well,

Anita

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Disclaimer

Anita Clew's blog posts are intended for general guidance and should never be taken as legal advice. In all instances where harassment, inequity, or unfair treatment is believed to be present, please consult your HR Department or legal representation.
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