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When does health insurance expire after leaving a job?

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7 mins

Steve was at his wit’s end. As a project manager, he had performed at his highest level ever as he worked from home and his productivity increased. He didn’t miss the commute, he loved the autonomy and felt he was on top of the world professionally. The pandemic had given him the chance to prove himself, and he succeeded.

But, things changed abruptly for Steve when his manager told him that in four weeks, Steve would be required to return to the office and would be working from there again. After giving the situation careful consideration, Steve decided to give his two weeks notice and find a job working remotely full-time as a project manager.

Steve was okay giving up his paycheck for a few months as he searched for another job; he had saved enough money to live comfortably during the transition. But he had one major concern: losing his employer-sponsored health insurance.

Are you about to leave your job or thinking about it? In this article, we’re going to arm you with the information you need concerning your health insurance options when you leave your job.

If being added to a spouse’s plan isn’t an option for you, you’re going to need to make some quick decisions about your insurance situation. Your coverage will either end on the day your employment ends or at the end of the month that you worked your final day.

Let’s explore your alternatives.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

If you worked for a company with 20 or more employees, you’re going to be getting a packet in the mail shortly after you leave explaining COBRA. It will tell you about what it will cover, how long you’ll be covered, and what it’s going to cost you.

If you’ve not ever needed to consider COBRA before, you might be scratching your head when you get the packet. Essentially, COBRA is temporary health insurance coverage offered by the same health insurance company that provided your group health insurance where you worked.

COBRA typically offers coverage up to 18 months. You, your spouse, former spouses, and dependent children can all be covered by one monthly premium. Sound good? It is, except for one significant detail: the cost.

When you were covered at your old job, part of the monthly premium was probably paid by your employer, at least for you as the employee; you may have had to pay the full cost for your family members. It wasn’t inexpensive, but it was a benefit you needed to enroll in to protect you and your family. The monthly premium was conveniently deducted from your paycheck.

However, with COBRA, you pay the portion you used to pay plus the amount your employer contributed, plus a monthly administration fee to the insurer. You’ll probably be quite surprised how high the premium is if you want to go this route.

It can make sense to take COBRA coverage for a couple of reasons:

  1. You’ve already met your annual deductible, and you anticipate further medical treatment and bills for the remainder of the year. You won’t need to start over with your deductible when you take COBRA coverage, whereas you will if you decide to buy health insurance from another provider. Also, any medical conditions you and your family have will very likely be labeled pre-existing conditions by a new insurer and would be excluded from coverage.
  2. You already have lined up a new job, and coverage starts your first day of work there, which is only a month or two away.

If you’re not liking what COBRA costs, you do have other options.

Health Insurance Marketplace (Affordable Care Act)

Also known as “Obamacare” or “marketplace” coverage, the health insurance marketplace provides coverage for U.S. citizens or nationals that are present in the U.S. and are not incarcerated. You have a variety of plans offered by different insurers that you can choose from, all offering essentially the same benefits — hospital coverage, doctor’s office visits, prescriptions, and more

Everyone who applies for a marketplace plan is approved, and most people will qualify for a tax credit based on income and family situation. In addition, the marketplace will also tell you if you qualify for coverage through Medicare or Children’s Health Insurance Program (CHIP).

The monthly premiums for a marketplace plan are also not inexpensive. For example, the average monthly premium for marketplace coverage in 2020 in California was $569, $478 in Colorado, and $668 in Delaware.

You won’t have to worry about pre-existing conditions being excluded by marketplace plans. They must be covered, and no plan can reject you or charge you more because of your pre-existing conditions.

Enrollment in marketplace coverage can be done online. You may read where open enrollment for coverage starts on November 1 and ends on December 15, but you don’t need to wait to enroll until then if you’ve experienced a “qualifying event,” which includes a change in your employment status.

Detailed information on marketplace coverage can be found here.

Private health insurance

Also not inexpensive (notice a trend here?) is private health insurance through companies like Blue Cross/Blue Shield, Prudential, and Humana (availability can vary depending on where you live).

Private health insurance companies typically offer a wide variety of policies, from comprehensive plans that cover hospital stays, office visits, outpatient care, prescriptions, and much more, to high-deductible health insurance plans designed primarily to cover high-cost medical procedures and hospital stays.

Buyer beware, however, concerning pre-existing conditions. Just about any medical condition you currently have or have had in the past is likely to be excluded from coverage.

[ Related read: Understanding the pros & cons of high-deductible health plans ]

Short-term health insurance

Short-term health insurance can work well for you if you have another job lined up that starts within six months. It’s not your most expensive option, but it’s also not going to offer you the comprehensive coverage you might be looking for. Short-term plans won’t cover pre-existing conditions, and plans have a maximum coverage period of six or twelve months.

[ Related read: When does it make sense to get short-term health insurance? ]

Supplemental health insurance

Another option you have is to pick and choose coverages that are designed to cover specific illnesses. Some of the plans you can choose from include:

Once again, beware of pre-existing condition clauses that some policies will contain.

Finding health insurance when you leave your job can be done relatively quickly, and you can conveniently apply online when you’re ready. Be prepared to pay more (in some cases, a lot more) than you paid before, but remember that the cost will be the least of your concerns if a major illness strikes you or a family member.

Having grown up in upstate New York, Bob Phillips spent over 15 years in the financial services world and has been making freelance writing contributions to blogs and websites since 2007. He resides in North Texas with his wife and Doberman puppy.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published September 13, 2021
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