Healthcare options for displaced employees

Cobra & Short Term Medical Options

What coverage options are available during attrition? Given today's business and economic climate, increasing unemployment is an unfortunate reality. Regardless of the type of business, a reduction in workforce decision is never easy nor without peripheral implications.

Chief among these implications is the dilemma surrounding health care for ex-employees. Considering the every increasing cost of care, it's imperative to provide helpful tools and resources that enable coverage while out of work. After all, an employee's services may be needed in the future, so let them remember you as a resource during their departure.

Traditional thought suggests COBRA is the answer to continued coverage for ex-employees. However, short term medical, portability and/or individual medical coverage may be more appealing options for your ex-employees and/or your company. Making these other options accessible could prove beneficial and help further reduce an already stressful situation.

COBRA

COBRA is the continuation of benefits to ex-employees. In almost all cases, COBRA must be offered to ex-employees if the employer has 20 or more full time employees. Unfortunately, this rule is not so straight forward so please review this government website for details. Historically, COBRA may or may not have been the best option for continuing healthcare, primarily due to cost to the employee. However, for anyone with existing medical issues, COBRA is guaranteed coverage and not subject to pre-existing condition terms normally associated with new plan enrollment.

With the passage of the federal stimulus package (Feb. 2009), COBRA is now a more affordable option for departing employees. Under the stimulus plan, ex-employees are responsible for 35% of the COBRA premium instead of 100%, requiring the employer paying the balance. The greatest advantage of COBRA is continuation of healthcare coverage from the existing carrier without interruption. However, COBRA is not long term health care solution and generally provides coverage for 18 months.

Short Term Medical

Another option for departed employees is short term medical insurance. Short term medical coverage is ideal for healthy individuals and families without pre-existing conditions. The premiums are very reasonable with a choice of co-pays and deductible amounts. However, contracts may be limited to six months in some states, coverage is limited vs. comprehensive medical, and pre-existing conditions are generally not covered. It's very important to read the policy carefully before choosing this option for continued coverage. If unemployment is anticipated to last greater than 6 months it's probably not a good option.

Portability

Portability plans may be offered by your group health insurance carrier and is permanent coverage, not limited to 18 months in the case of COBRA. In most cases ex-employees qualify for portability plans but please check with your healthplan for details. If permanent health coverage is required and existing health conditions exist, portability should be considered.

Individual Medical

In some cases applying for individual/family coverage is more economical than COBRA. The two options must be analyzed very carefully. Just because a carrier offers an attractive premium does not mean it's a better option. That attractive price may come with many restrictions, scrutinized underwriting and a limited network. If this option is a serious consideration it's best to discuss this with and expert in healthcare insurance.

No Coverage

This option is not recommended. Individuals pay 100% of the medical bill and cannot take advantage of provider discounts. In cases of catastrophic events, expenses can be so severe it may cause bankruptcy.
There are healthcare options for displaced employees. COBRA should be the initial consideration, especially if health issues exist or there is a desire to continue the existing coverage. If permanent coverage is desired and health issues exist, portability may be a better option. Finally, if the individual or family is very healthy with no existing conditions or illnesses, applying for individual/family coverage or short term medical is a consideration; however, it's best to consult an expert in medical insurance for advice.

Back to Articles »