In a post ACA world, employers who offer COBRA payments for a period after an employee’s termination should be VERY CLEAR that when employer COBRA severance ends, the terminated employee will pay the entire COBRA payment and will NOT be able to purchase a less expensive individual health plan outside of the open enrollment period.

Example: Jane is laid off from XYZ Company on March 1, 2015. As part of her severance package, XYZ offers to pay the premiums on COBRA for 6 months, ending September 2015. At that date, COBRA does not expire, and Jane’s change in premium DOES NOT result in a qualifying event that would allow her to purchase less expensive individual coverage either inside or outside of Covered CA. Jane has to wait until the next individual open enrollment begins to purchase a less expensive individual plan, as well as take advantage of any subsidies she may be entitled to. The earliest effective date on an individual health plan for Jane would be January 1, 2016.

The qualifying event that entitles an employee to purchase individual health coverage outside of the open enrollment period occurs at termination BEFORE the employee elects the COBRA coverage. Once COBRA has been elected, the qualifying event expires.

This may change the employee’s choices, depending on the cost savings of employer paid COBRA vs. the cost of an individual plan.

For employers, best practices with regards to COBRA and severance packages include:

1) Clear notice about the effect of electing COBRA on future health insurance premiums

2) A resource for individual health insurance cost comparisons

3) An option to receive one “lump sum” severance at the time of termination for use in purchase of an individual health insurance plan

Such steps help ensure that the employers best intentions are realized for any terminated employee.