If you or someone you know has been laid off or has accepted an early retirement offer, it’s important to know what healthcare options may be available. Here are some alternatives, along with answers to commonly asked questions and additional information you may find helpful.
Continuing coverage with "working" premium costs
To reduce costs, many employers are offering early retirement packages to certain employees. Sometimes these packages allow the retiree to continue being covered by their employer’s group health insurance and pay the same premiums they’d pay if there were still employed.
But, more often than not, former employees who want to stay on their former company’s plan must continue their coverage with COBRA.
COBRA: Extended coverage required by law
COBRA--the Consolidated Omnibus Budget Reconciliation Act (COBRA)--is a federal law that allows an employee with a qualifying event—such as a layoff or a reduction in work hours—to continue with his or her employer’s group health insurance plan for up to 36 months.
But not all employees are eligible. Only employers with 20 or more employees must offer COBRA; those with fewer than 20 employees are exempt. Both full- and part-time employees are considered, where a part-time employee counts as a fraction of a full-time employee.
Who is covered
You, your spouse and your dependent children are eligible for continued group health insurance coverage under COBRA.
When you working for a company, your employer generally pays a share of your healthcare premium, with you paying the remainder. Under COBRA, you can expect to pay the full premium plus an additional 2 percent to continue the group health insurance plan. This could potentially double or triple your monthly healthcare premiums.
When to apply
Generally, you have a 60-day window to apply for COBRA. That period begins either on the date you receive your COBRA notice from the group insurance plan or the date you would lose your employer-provided health insurance, whichever comes later.
Up to 18 months of coverage
If you lose your job for any reason other than gross misconduct or a reduction in work hours, you and your qualified beneficiaries can continue the group health insurance coverage through COBRA for up to 18 months.
The potential impact of Medicare
If you become eligible for Medicare during this period your spouse and dependent children may be eligible for an additional 18 months of COBRA for a total coverage period of 36 months.
Other healthcare options
If you are not eligible for COBRA, or when your coverage period ends, there are some other options to consider for health insurance coverage.
The Health Insurance Portability and Accountability Act (HIPAA)
Under HIPAA, you can enroll in a spouse’s employer-provided health insurance plan without waiting for the next open enrollment period. You have a 30-day special enrollment period that begins on the date you lose your own health insurance.
The Affordable Care Act (ACA)
Under the ACA, the federal government—and some state governments—established a health insurance exchange. If you lose your job, you have a 60-day special enrollment period to find health insurance through the exchange. Information about the federal Health Insurance Marketplace and the availability of income-based premium subsidies is available at www.healthcare.gov. You can find specific information for each state by visiting www.healthcare.gov/marketplace-in-your-state/. Eligibility for premium subsidies will depend on whether your income falls below a certain threshold.
Most states use the federal health insurance exchange. Twelve states (and the District of Columbia) have their own insurance exchanges that operate independent of the federal exchange: California, Colorado, Connecticut, Idaho, Maryland, Massachusetts, Minnesota, Nevada, New York, Rhode Island, Vermont, and Washington. With the exception of Idaho, they have all reopened their insurance exchanges for new enrollments due of the coronavirus pandemic. The federal government has not reopened its exchange.
Short-term health insurance plans
A short-term health insurance plan may provide coverage for up to 36 months. Be aware that short-term health insurance plans are not required to cover all services or prescription drugs. In addition, because state law regulates health insurance, short-term plans are not available in every state. In 2020, short-term health insurance plans are not available in California, Colorado, Connecticut, Hawaii, Maine, Massachusetts, New Mexico, New Jersey, New York, Rhode Island, and Vermont.
Paying insurance premiums with a Health Savings Account
You may consider using your health savings account (HSA) to pay health insurance premiums while unemployed. Your HSA is portable and remains with you after your employment ends.
According to IRS Publication 969, tax-free qualified distributions from an HSA include COBRA premiums, premiums for health coverage while receiving unemployment compensation under federal or state law, and premiums for long-term care insurance. Also, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) expanded the definition of qualified medical expense to include over-the-counter medications.
Tax breaks for healthcare expenses
Health insurance premiums are a deductible medical expense if you can itemize deductions on your federal income tax return. Your itemized deductions must exceed the standard deduction thresholds. In 2020, the standard deduction is $12,400 for an individual income tax filer and $24,800 for married couples filing jointly. Medical expenses in excess of 7.5 percent of your adjusted gross income can be taken as an itemized deduction.
For more information
Visit the Department of Labor’s website to find general information about COBRA or to download a detailed guide. Or, visit www.healthcare.gov for information about the ACA.
The loss of employment and the expected rise in healthcare costs can thoroughly disrupt your financial life. A qualified financial planner can help you examine all of your sources of income and expenses and offer recommendations to help you manage your finances during these stressful times.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
Joelle Spear is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. She offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. She can be reached at 508.598.1082 or firstname.lastname@example.org
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