Employees who lose jobs that came with health coverage have several options when it comes to staying insured, but here’s a new wrinkle that’s flown under the radar.
Responding to the unemployment tsunami stemming from the coronavirus, the Department of Labor issued guidance on May 4 that gives laid-off workers a vastly expanded period of time in which to choose and pay for Cobra coverage.
Cobra is the federal law that lets most employees who quit or lose their job stay on their former employer’s medical, dental or vision plan at their own expense, generally for up to 18 months. A state law known as Cal-Cobra lets some Californians stay on plans for up to 36 months. Cal-Cobra does not apply to self-insured plans, where the employer pays all claims. Many large employers are self-insured, although their employees may not know it.
Only 6% to 8% of workers who leave a job choose Cobra because they “are shell-shocked at the cost,” said Jody Dietel, a senior vice president with HealthEquity, which administers benefit plans.
Most employers charge the departed worker the full premium plus a 2% administrative fee. The average cost of employer coverage nationwide is about $600 a month for one person and $1,700 for a family, according to the Kaiser Family Foundation.
Normally, employees have up to 60 days from the day they lost coverage (or when a Cobra notice was mailed, whichever is later) to “elect” Cobra, or say they want it. After electing it, they have 45 days to pay premiums dating back to their loss of coverage.
If during the 60-day period, they haven’t elected coverage but incur a big medical expense, they can elect coverage at that point and have the claim paid as long as they pay their premiums within 45 days.
If after 60 days, they haven’t had any major medical expenses, they can simply not elect Cobra and not pay the past premiums (although they should have found other coverage). “You snap your fingers and pay your premium, you’re reinstated. It’s like a magic wand,” said Karen Pollitz, a senior fellow with the Kaiser Family Foundation.
“People call it the election dance. It’s a brief period where you can hedge your bets. You can essentially restore coverage retroactively. But it’s risky,” she added. “If you get knocked unconscious, are you going to be awake to send in your election papers and checks?”
In some cases, if someone needs critical care during this 60-day period and has no other health insurance, hospitals or other medical providers might pay the person’s Cobra premiums to make sure they get paid, Dietel said.
The guidance from the Labor Department and the Internal Revenue Service extends the election dance.
It defines a new “outbreak period” that started March 1 and will end 60 days after the national COVID-19 emergency declaration expires (but not past March 1, 2021). During this period, the deadlines for electing and paying for Cobra are suspended, said Littler attorney Anne Sanchez LaWer.
At the end of the outbreak period, former employees will still have 60 days to elect Cobra and 45 days after that to pay all back premiums if they decide to stay in the plan.
For example, if the emergency declaration ends Aug. 31, the outbreak period would end Oct. 30. If you lost coverage June 1, you would have until Dec. 29 to elect Cobra and 45 days after that to pay premiums dating back to June 1 to stay in the plan.
If you don’t have any major medical expenses during this period, you could switch to another plan without paying the missed premiums.
“Employers are worried. The longer this dance period is allowed to drag on, the greater their exposure to this sort of adverse selection,” Pollitz said. That means the people most likely to pay premiums are those who get sick.
“If you are worried about being uninsured but also worried about paying all your other bills, doing the Cobra dance would be a way to hold the health insurance decision in abeyance. But that only works if you can possibly find a way to pay your premiums retroactively,” Pollitz said.
Switching to a spouse’s plan is usually a better option when the plan subsidizes the spouse’s coverage. Normally, people who lose coverage have 30 days to join a spouse’s plan, but under the labor department guidance, they have until 30 days after the outbreak period ends, Pollitz said.
Switching plans might not make sense if you have already met your deductible and your spouse hasn’t, or if your spouse’s plan won’t cover medicine or specialists you need.
If you’ve lost your job and haven’t started receiving unemployment, you could qualify for Medi-Cal, California’s version of Medicaid. “They look at your current income,” not our past earnings or savings, Pollitz said. “There is no premium, no deductible, it’s comprehensive coverage,” Pollitz said.
Even if you don’t qualify for Medi-Cal, your children younger than 19 may qualify for low-cost coverage through the Children’s Health Insurance Program, known as CHIP. You can enroll in Medicare and CHIP at any time, said Nicky Brown, a vice president with HealthEquity.
If your income is too high for Medi-Cal, you may be able to get subsidized private health insurance through Covered California. Through the end of June, any eligible uninsured person can enroll in Covered California. After that, you can only enroll during its open enrollment period which starts in the fall, or if you lose coverage because of certain life-changing events such as a job loss. In that case, you have 60 days after you lose coverage to enroll. The new guidance did not change that deadline.
Employers are concerned about “adverse selection and the administrative complexity” of complying with the new Cobra rules, said Ilyse Schuman, a senior vice president with the American Benefits Council, which represents employers.
That is why the council and others are backing a provision in the House-passed Heroes Act, which would pay 100% of Cobra premiums for workers laid off between March 1, 2020, and Jan. 31, 2021.
In 2008-09, Congress provided a 65% Cobra subsidy to unemployed workers, but only one-quarter to one-third of those eligible enrolled in Cobra, according to a U.S. Treasury Department estimate.
Dietel said she “appreciates the flexibility” the new Cobra guidance provides, “but it would be much more important for Congress to provide a Cobra subsidy like they did in 2009. It’s better than having people game the system.”