Job Loss Part 3: Losing Your Health Insurance
While losing your income is probably the worst thing about losing a job, the second worst thing for most people is losing you health care benefits. If you’re young and reasonably healthy, this might not seem like such a big problem, but for older workers or persons with pre-existing health conditions it can be a nightmare.
COBRA is named for the Consolidated Omnibus Budget Reconciliation Act, the health benefit provision act enacted in 1986. This allows you some time to stay on your employer’s health insurance program for awhile after leaving your job. Generally, you can be covered under COBRA for 18 months. Here’s a link to the Department of Revenue page about COBRA coverage: http://www.dol.gov/ebsa/faqs/faq-consumer-cobra.html.
Under COBRA, you will pay 102% of the real cost of your health insurance. (There’s an extra 2% administrative charge added.) That can be a real shocker if your employer was paying a portion of your insurance while you were working. If you have no income, you might not be able to afford your COBRA payments.
You’re going to have to make a decision, but here’s the important thing you need to know—you’ve got 60 days to make it. This buys you some important thinking time. Don’t sign up for the COBRA immediately unless of course you know you’ve got pre-existing conditions and you won’t be able to get insurance elsewhere. You can hold off signing up for COBRA while you shop around for other insurance (or get another job!). If something happens to you and you need that insurance, you can backdate your enrollment and be covered for the emergency. This is also helpful if you just can’t afford health insurance at all.
Remember, purchasing private health insurance takes time so you want to start right away. If you can’t get coverage elsewhere, you don’t want to miss the 60 day deadline to sign up for the COBRA. Don’t forget to look into state programs as well. Here in St. Louis we’ve got Missouri HealthNet for Kids which provides health insurance to children on a sliding scale basis. Here’s a link to their website: http://www.dss.mo.gov/mhk/ Check out all your options. For many people, COBRA is not the lowest cost option.
For tax purposes, your COBRA or private health insurance is considered to be a deductible medical expense. That said, you’ll have to spend over 7.5% of your income on healthcare in order for it to be deductible. For most people, it won’t give them much of a tax benefit if any.
One more health care issue: If you had an FSA (flexible spending account) at your old job, make sure that you submit all of your health reimbursement forms before the account expires. No sense in leaving money behind.