Joblessness— whether planned for or thrown in your lap without warning— feels a little like free-falling without a net. There’s no guarantee you’ll land on your feet. And while a change in income is likely the most significant financial adjustment you’ll encounter if you’re newly unemployed, it’s certainly not the only one worth your attention. A gap in your health insurance coverage could expose you to costly medical bills. But individuals who have found themselves in this pickle will be happy to know the passage of the Affordable Care Act (ACA) gives you more options than ever for closing that gap.
About half of all Americans receive health insurance through an employer, according to the latest data from the Kaiser Family Foundation. With the average annual premium for an employer-based plan hovering around $6,000 for individual coverage and $17,000 for families in 2014, your health benefits must play a part in your exit strategy.
Know your health insurance options
The ACA dramatically expanded options for former employees in need of health insurance. Because of the variety of plans available and the potential for money-saving subsidies on federal and state marketplaces, buying a new individual policy makes the most financial sense for many people. Prior to the ACA, COBRA— a set of laws allowing employees to keep employer-based benefits after leaving a job— was usually the best option.
ACA marketplace plans
Losing employer-based health insurance is considered a “qualifying event,” one that allows you to enroll in an individual plan on the marketplace outside of the annual open enrollment period. Your exemption gives you 60 days to shop once you lose coverage, and you’ll have access to a variety of plans, carriers and price points.
You also have 60 days to opt into or decline COBRA. That clock starts ticking the day you receive notification about your COBRA rights, including how much it would cost to continue coverage. It doesn’t come cheap. If you extend your current health coverage under COBRA, you’ll pay your entire premium, including your employer’s contribution, plus a 2 percent administrative charge. In all, your monthly bill could be several times the amount that used to come out of your paycheck.
COBRA or individual policy: Which is right for you?
No two situations are the same when it comes to health coverage. As such, there are several things you need to consider when deciding between an ACA plan and COBRA.
Rob DiMase, executive vice president of Sentinel Benefits & Financial Group in Wakefield, Massachusetts, suggests weighing these factors, in addition to a simple side-by-side rate comparison:
1. Whether you qualify for a tax credit. Rates listed for plans on ACA marketplaces don’t tell the entire story. About 87 percent of people buying such plans qualify for premium subsidies.
2. Whether you’ve met your current deductible. It might make sense to keep your employer plan for the rest of the year if you’ve already met a hefty deductible and expect to incur more health care costs. You’ll start from scratch on a new plan’s deductible if you switch.
3. When your COBRA rates might change. Group policies renew and change at different times. Know when your rates could increase and make sure to weigh this increase in your cost comparisons with ACA plans.
4. Your age. Employer-based plans are group plans, in which rates are established based on you and all of your coworkers, many of whom could be older than you. Because insurers take your age into consideration when setting rates— just how much depends on your state— an individual plan could be cheaper than your employer coverage if you’re young or much more expensive if you’re older.
Don’t forget about your FSA or HSA
Your insurance plan isn’t the only health benefit you should consider when leaving your job.
Health savings accounts, or HSAs, follow you when you leave your job. Of course, your employer will no longer make contributions if they did before, and you’ll only be able to contribute if you remain covered by a qualifying high deductible health plan, or HDHP. But you’re not limited to your employer’s HDHP— finding one on the marketplace works, too. Regardless, you can use the money already in your HSA for health care expenses.
Things are a little trickier if you have a flexible spending account, or FSA. Your employer funds these accounts with your entire annual election at the beginning of the year, and you reimburse them with your monthly contributions.
If you leave your job with money in your FSA, it doesn’t come with you, meaning you lose contributions you haven’t used. But FSAs are COBRA-eligible, and signing up unlocks your entire annual election, even those monthly contributions you haven’t yet made, according to DiMase. Even if you only make one COBRA payment, you can use your entire annual election in that month.
In most cases, choosing a new plan from the individual marketplace makes sense for former employees. But you should still weigh your options carefully. Your age, medical needs and anticipated costs, and ability to pay premiums should all influence in your final decision.