Health Care Reform (Obamacare, The Affordable Care Act, ACA) may dramatically change the number of terminated employees that elect COBRA. Why?  Because Obamacare has created many more options for terminated employees, including the possibility of receiving an advance premium tax credit (also known as subsidy) for terminated employees that qualify.

What exactly is COBRA, and why was it the only option for terminated employees prior to Obamacare?

COBRA…Consolidated Omnibus Budget Reconciliation Act, is a law that requires employers to offer continuation of company sponsored health insurance on employee termination.  COBRA is temporary and, in most cases, will expire in 18 months.  Employees are responsible to pay the full cost of premiums under COBRA, there is no contribution from employers on termination of employment. 

COBRA is elective, terminated employees are not obligated to stay on company sponsored health insurance, but, prior to Obamacare, many terminated employees did elect COBRA coverage because they had a pre-existing condition that made them ineligible to purchase health insurance individually.

Why Does Obamacare create more options for terminated employees?

  1. Obamacare eliminates pre-existing condition denial from insurance carriers
  2. Obamacare creates subsidies to help pay the costs of monthly premiums, for those that qualify
  3. Termination from employment creates as qualifying event that allows such employees to buy individual health plans outside of the open enrollment time

Will a terminated employee qualify for subsidy?

Maybe.   Subsidy qualification is based on available employer sponsored health insurance and employee adjusted gross income.  After termination, the employee will not have employer sponsored coverage (COBRA does not count in this regard).   And, the employee’s estimated adjusted gross income, based on the job loss, may deem eligibility for subsidies available with Obamacare.

What happens if an employee is terminated outside of the Individual Open Enrollment period?

The employee termination creates a qualifying event for purposes of enrolling in an individual health plan, either through the government marketplaces, such as Covered CA,  or outside of the government marketplaces.

So, if a terminated employee wants to purchase an individual health plan, they do not need to do it through a marketplace such as Covered CA?

They are only obligated to go through a government marketplace such as Covered CA if they would like receive subsidy to pay for monthly premiums.

What if a terminated employee cannot estimate their income when they lose their job? 

An employee should make a good faith attempt to calculate their income to date of losing their job, estimated through the remainder of the tax year, and report changes as they become aware of the change.  Any difference in subsidy taken versus subsidy entitled will be reconciled when they file their tax return.

What if the terminated employee ends up getting a new job?

When the terminated employee gets a new job and becomes eligible for his new employer’s health insurance plan, he can suspend his individual health insurance coverage.

What if the terminated employee can get coverage on a spouses work plan?

If the spouse is offered group coverage that is affordable to the spouse only,  then the terminated employee is ineligible for subsidies.   Options would be to join the spouse’s group plan or shop for an individual, non-subsidized plan.

Will the terminated employee be assessed a penalty for not having health insurance?

Generally, gaps in coverage longer than 3 months will trigger the individual shared responsibility penalty.

Can the health insurance agent for the employer group health insurance help terminated employees enroll in an individual health plan?

Agents that assist individuals in applying for insurance through the government marketplaces must be certified by the State exchange the employee will be purchasing from.  Some agencies that sell group health insurance offer individual insurance services for the employees of their groups.

So, what is the first thing a terminated employee should do about health insurance?

The terminated employee should first determine whether he will now be eligible for health insurance subsidies.  If he is, he should buy a plan through the State’s marketplace (Covered CA in California).  If he is not, he should determine the cost of being added to a spouse’s plan.  If that is not an option, he should get quotes for non-subsidized plans and compare the cost of those plans to COBRA.

The last thing a terminated employee should compare is the doctors available on each plan.

Generally, won’t COBRA be more expensive?  What is a good reason to elect COBRA over an individual plan?

Doctors.  The network of doctors for an individual health plan is most likely not the same as the network of doctors for a group plan.  If the employee needs to have a specific doctor, health care provider or medical provider group, it may be advantageous to elect COBRA or find a health plan that has a comparable network of doctors.