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Money Management (Distributed by the New Jersey Society of Certified Public Accountants)

Health Insurance Options for Employees in Transition

Downsized, laid off, dismissed, terminated, fired - call it what you may, losing your job is difficult. Of the many adverse outcomes, the loss of medical benefits is often the greatest concern to most people. Help is available, however, through two Acts of Congress.

According to the New Jersey Society of Certified Public Accountants (NJSCPA), if you quit, lose your job or experience a reduction in hours that results in losing medical benefits, you may be entitled to purchase temporary extended health coverage. This coverage is available for you, your spouse, and your dependents under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly referred to as COBRA. And as a result of the Health Insurance Portability and Accountability Act (HIPAA), passed in 1996, when you enroll in a new health insurance plan, you may face fewer barriers to coverage.

Qualifying And Paying For Cobra Benefits
To be eligible for COBRA, your employer must have had 20 or more employees, you must have been enrolled in your employer's group health plan, and the employer must continue to have a plan in effect for active employees. If the company closed or went bankrupt and there is no longer a health plan, no COBRA coverage is available.

Your employer may have paid a portion or all of your premiums for healthcare coverage. Under COBRA, you typically are required to pay the entire premium and in some cases, a two-percent administrative fee. While COBRA rates may seem high, you are paying group premium rates, which are often lower than individual plan rates.

COBRA coverage is temporary. Generally, individuals are covered for a maximum of 18 months or longer if disabled. Basically, COBRA buys valuable time for you to obtain coverage under a new employer or to shop for a new policy.

Applying For Cobra Benefits
When you are no longer eligible for employee medical coverage, your employer is required to provide you with a notice explaining your right to continue benefits under COBRA. You have 60 days from the date of the notice or from the date healthcare coverage ceases, whichever is later, to elect COBRA coverage. Otherwise, you lose all rights to COBRA benefits.

Portability Act Makes Health Insurance Switches More Seamless
Many health plans have a pre-existing condition exclusion period. During this period, the health plan may choose not to cover treatment of a physical or mental illness or condition that was present prior to your enrollment date under the new plan. The Health Insurance Portability and Accountability Act (HIPAA), limits the extent to which medical plans can exclude coverage for pre-existing conditions.

Under HIPAA, pre-existing conditions may be excluded only for medical advice, diagnosis, care, or treatment that was recommended or received within the six-month period before your enrollment date. Insurers must cover pre-existing conditions after you have been in the plan for 12 months.

Furthermore, when moving from one group plan to another, you are entitled to credit for maintaining previous "certified" health coverage. That means your new plan's pre-existing conditions exclusion period must be reduced by the duration of your previous health coverage. For example, if you were covered by your former employer's plan for four months and your new plan has a 12-month pre-existing conditions exclusion, your new plan cannot exclude coverage for more than eight months. However, if you move to the new plan within 63 days of terminating your previous coverage and you had continuous health insurance for at least 12 months prior, your new plan cannot invoke pre-existing condition exclusions at all. Your former employer is required to provide you with a certificate that documents your "credible" coverage. Keeping coverage of some type, either under COBRA or an individual plan, enables you to avoid pre-existing condition exclusions.

If you find yourself faced with the possibility of losing healthcare benefits, CPAs recommend that you research your rights under COBRA and HIPAA and consult with your CPA regarding other alternatives.

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Money Management is a weekly column on personal finance distributed by the NJSCPA.

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