If you worked for an employer that offered health benefits, when you decide to retire early or lose your job, it becomes quickly apparent how valuable that benefit was. Generally, when an employer offers health insurance coverage, the premium costs are split between you and the employer. Whether it is $20 or $300 per paycheck, you’re generally only paying a portion of the total premium in a large group plan. So, what happens when you are no longer employed and eligible for these benefits?
Your Options for Coverage
When you terminate service with your employer, regardless of whether or not it is voluntary, you probably won’t be able to remain on the employer’s group plan unless the termination comes with some sort of severance package. Even then, the duration of coverage is typically limited to a few months.
Your first option, if you’re married, is to check with your spouse’s employer to see what type of health coverage is available. Typically the employer-sponsored group plans will be the most affordable, so that should be your first resource. If that isn’t an option, you should also check with any associations or professional organizations that you or your spouse may be a part of as they can sometimes offer group plans.
Under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), most employers are required to provide continuing coverage through their plan that can last for up to 18 months, or in some special cases, as long as 36 months. With COBRA you are required to pay the entire premium for the group policy plus any administrative costs.
For example, if you were paying a $50 premium for your health benefits bi-weekly, and your employer was paying the remaining $100 of the premium--under COBRA you would be required to pay around $150 every two weeks, or about $300 per month to continue that coverage.
Finally, if you aren’t eligible for COBRA or would like to explore other alternatives, you can explore individual health insurance policies. Unfortunately, individual policies can be expensive, and they may require a physical examination and may not cover preexisting conditions which would be covered by a group plan.
What to do When COBRA Expires
Fortunately, most of the time you would be eligible for COBRA and that could provide coverage for at least 18 months and possibly longer, but what happens when that runs out? Thanks to the Health Insurance Portability and Accountability Act of 1996 (HIPAA), those who exhaust their COBRA benefits are eligible to receive an individual policy that covers themselves and dependents without the preexisting conditions restriction.
Of course, individual policies will likely cost more than a group policy, but you can at least obtain full coverage without worrying about preexisting conditions being denied. There are a lot of individual health insurance providers out there, so be sure to examine your options carefully before making a decision.
One thing to be aware of with HIPAA is that this continued coverage requires that you have continuous coverage with no significant gaps in coverage. For HIPAA specifically, the maximum gap allowed is 62 days. If you have a gap of 63 days or more of coverage, you would be ineligible.
Early Retirement Coverage
If your termination of service from your employer is due to an early retirement, you’ll want to explore the possibility of early retiree benefits. Individuals are not eligible for Medicare until age 65, so if you retire at any point prior to turning 65, you’ll need to find coverage to bridge that gap.
Some employers offer assistance for early retirees where you are allowed to continue coverage through COBRA, and when that is exhausted, you can join their early retiree group plan until you reach Medicare eligibility. This type of coverage is not required by law and is only a possible benefit, so make sure you explore all of your options before deciding to take an early retirement.