-The Catch 22 when employment ends.
When your job ends, typically, so does your health insurance. If your company offers COBRA, and you timely elected it, and the premium is paid, health insurance coverage will be retroactive. Thus, you will avoid any gap in coverage. Under the Affordable Care Act, also known as “Obamacare,” the open enrollment period expired March 31, 2014. The next enrollment is not scheduled until November 15, 2014. Loss of employment is a “qualifying event” for which a special enrollment period applies. Thus, you would not have to wait until the next open enrollment period to enroll in the Health Exchange, or change to a health insurance provider outside of the Exchange if you do so within 60 days of the event. Most likely, the Exchanges are going to be less expensive than the cost to COBRA through your group health insurance, and possibly less than plans outside of the Exchange.
Here’s the Catch 22: if you elect COBRA, even for a single month, regardless of whether you or your employer paid for it, as is often the case with severance agreements, you do not qualify for the special enrollment period until your COBRA period ends. You will be forced to wait until the next open enrollment period to change health insurance either through the Exchange, or outside of the Exchange.
Thus, the choice is as follows: choose between COBRA and/or the Healthcare Exchange at the end of your employment. But be aware, you are stuck with your choice until the next open enrollment period, so choose quickly.
If you choose the Healthcare Exchange, make sure that you do not elect COBRA, including as part of any severance package. If you have a severance package, ask your employer to pay you the money directly so you can apply it toward the Healthcare Exchange, or health insurance outside of the Exchange in lieu of COBRA.
Please be aware, however, if you choose to use the Healthcare Exchange, you will have a gap in coverage. If your health insurance coverage terminated when you lost your employment, it will typically take several days to obtain Healthcare Exchange coverage, or coverage outside of the Exchange. A gap in coverage means that any medical treatment you have between the time your employer provided health insurance terminates and the time you obtain coverage will be out of your pocket.
If you choose to obtain COBRA coverage, either to obtain retroactive medical coverage or because your employer is paying a month or more of it, you’re stuck with COBRA until the next open enrollment for the Healthcare Exchange. This is true even if you plan to obtain private health insurance outside of the Exchange.
The Catch: you’ll have to pay the higher COBRA premiums or lose coverage while you’re waiting for the next open enrollment.
If you’re an employer offering a severance agreement, rather than offering to subsidize COBRA premiums, temporarily, forcing your former employee to elect COBRA coverage to obtain the subsidy, you might instead provide an equivalent taxable cash payment to the employee allowing them to choose COBRA coverage, Health Exchange coverage, private coverage, or no coverage. Providing taxable cash compensation also avoids potential non- discrimination issues under Code Section 105 (h) if the employee is highly compensated.
When leaving a job, signing a separation agreement or preparing a release and severance agreement for a separated employee, it is important to check with an experienced employment attorney for up to date changes in the law. Faulkner Law Offices can provide the guidance you need.