Clients have thought long and hard before they visit us and have detailed questions about non-compete agreements. Or trade secrets. Or the Computer Fraud and Abuse Act. These questions are important but the first goal of any employee anticipating termination should be to maintain continuous health care coverage.
Typically, an employee has two options for obtaining health care coverage after his employment terminates. He can elect health care coverage under COBRA. Or, he can purchase coverage under the Affordable Care Act (the ACA or Obamacare).
If the employer has 20 or more employees, the employee is generally able to continue coverage under COBRA. (The employee must have been enrolled in the employer’s health plan, and the health plan must continue to be in effect for active employees.) Notice of this option is sent to the employee, usually after his employment has terminated. If the employee properly exercises this option, coverage is retroactive to the date of the loss of coverage. Typically, however, coverage under COBRA is expensive. It’s often more expensive than the amount that active employees are required to pay because the employer may pay part of the cost of coverage for active employeese and all of that cost can be charged to the individual receiving continuation coverage. Continuation coverage under COBRA typically costs more than insurance available through the ACA market. Continuation coverage under COBRA normally is available for 18 months.
Alternatively, insurance can be purchased in the ACA market. In Colorado, this marketplace is through Connect for Health Colorado. ACA’s coverage typically is prospective. We’ve seen reports from other states that it takes three or four days after your application for your coverage to be effective. Any response from Connect for Health may depend on the number of applications being submitted by others. Any delay in processing the application can create a gap in coverage after the employee leaves his job and before he gets a new job with new insurance coverage. The ACA market is only available during open enrollment periods and the special enrollment periods designated by the ACA. If the employee fails to act during the open enrollment period or a special enrollment period, he may be compelled to wait until the next open enrollment date.
Many problems can arise. An employee could decide because of the expense, for example, not to obtain COBRA coverage and instead pursue coverage through the ACA market. There is a risk, however, that the employee could incur medical expenses before the ACA insurance is effective. Signficant medical expenses could be incurred even if there is a small gap in coverage.
A problem also can arise if an employee initially elects to obtain coverage through COBRA and then decides to drop COBRA coverage in order to obtain cheaper coverage through the ACA. When the employee drops coverage under COBRA, enrollment may not be available under the ACA.
There are many difficult issues that can arise in connection with health care coverage, and this post does not purport to provide a comprehensive look at all those issues. Rather, this is a warning to all employees to educate yourselves about the health care options available if your employment is terminated.