Cobra Continuation: Are There More Affordable Options?

If you are one of the many American’s who elected to take advantage of a 65% reduction of your COBRA continuation premiums under  the American  Recovery and Reinvestment Act Of 2009 your reduced COBRA premium would have increased substantially in the  month of December 2009 when the “Cobra Stimulus” was originally planned to come to an end. However on December 21st 2009,  President Obama signed an extension to the ARRA “Cobra Stimulus” which continues the 65% reduction until February 28th. 2010.  As of February 26th, 2010 the House of Representatives has approved ANOTHER extension of the Cobra “Stimulus” reduction. More on Cobra & the Stimulus reduction below:

The following are the key provisions of the COBRA subsidy extension not discussed in the video:

  • The amount of time an AEI can receive a subsidy increases from nine to 15 months.
  • The subsidy eligibility period is expanded to include the period that begins with September 1, 2008, and ends with February 28, 2010 (formerly December 31, 2009). Significantly, the new rule does not require that COBRA coverage begin by the end of the period (February 28). Instead, the person is an AEI as long as the COBRA qualifying event (involuntary termination of employment) occurs by  February 28, 2010 and is entitled to COBRA coverage as a result of that event (those dates have been extended as of February 26, 2010).
  • For any AEI for whom the premium subsidy now applies due to the extension, there is a transition period consisting of any period of coverage that begins before the extension’s enactment date. Any period during which the applicable premium had been paid is to be treated as a period of coverage, irrespective of any failure to timely pay the applicable premium for such period.
  • Plan administrators must provide a notice on extension rights to AEIs who did not timely pay the COBRA premium for any period of coverage during their transition period or paid the full (non-subsidized) premium without regard to the subsidy rules. The notice must be provided within the first 60 days of their transition period, and must include information on the ability to make retroactive premium payments as a result of the transition period.
  • In the case of any premium for a period of coverage during an AEI’s transition period, an AEI shall be treated for purposes of any COBRA provision as having timely paid the premium amount if he or she: (a) was covered under the COBRA coverage to which such premium relates for the period of coverage immediately preceding the transition period; and (b) pays, not later than 60 days after the extension enactment date (or, if later, 30 days after the new notices are provided) the amount of the subsidized premium.
  • In the case of an AEI who, during his or her transition period, paid the full premium amount for such coverage without regard to the subsidy amount, ARRA’s rules allowing for that AEI to be reimbursed for the excess premiums will apply.
  • Plan administrators must provide notices of the new extension rights to individuals who became AEIs on or after October 31, 2009, or experience a qualifying event (consisting of termination of employment) relating to COBRA coverage on or after that date. The notice must be provided within 60 days after the extension’s enactment date or, in the case of a qualifying event occurring after the enactment date, consistent with the timing of COBRA notices.

The question that everyone is asking now is, “If I can’t afford my Cobra  premium once the Stimulus expires what are my options?”

there are several lower cost alternatives to paying high priced COBRA continuation premiums.  Depending on what State you live in, there may be other health insurance options that you can select when you first lose your job, when your 9 month subsidy expires or when COBRA finally runs out at the end of 18 months. They are as follows:

  • 1.) State Continuation of Coverage
  • 2.) Individual Health Insurance Policy
  • 3.) Small Group Health Insurance Plan
  • 4.) State Risk Pool Coverage
  • 5.)New PPACA “Pre-Existing Condition Insurance Plan”

  • Let’s take a look at these alternative plans:

  • 1.  The first option is “State Continuation of Coverage.” This option can only be elected when you first lose your employment. State Continuation of Coverage does not follow Cobra continuation laws, it does however allow you to continue your employer sponsored group coverage for up to 9 months even if your former employer employed less than 20 employees. This law does not apply to self-funded plans, so make sure to check with your State’s Department of Insurance to see if your State mandates State Continuation of Coverage.
  • 2.  The second option, an “Individual Health Insurance Policy” is typically the best and most affordable alternative for relatively healthy individuals. An individual health plan can be purchased at any time and is a great way to maintain many of the same kinds of benefits that you had through your former employer sponsored group health plan.

However, an Individual Health Insurance policy has to be “underwritten” before it is issued. During the “underwriting” process, the insurance company scrutinizes the applicant’s health history to determine if it will extend an offer for insurance coverage. This process allows the insurance company to “decline” coverage to applicants with serious pre-existing or chronic medical conditions or to modify the coverage it extends to the applicant.

Today, the “Individual” health insurance market has become quite competitive; therefore, many insurance carriers are willing to offer health insurance coverage to individuals with certain controlled pre-existing medical conditions, like high blood pressure or high cholesterol.

Other times, the insurance company will offer the applicant coverage, but will refuse to cover a specific body part or pre-existing condition. In these cases, the insurance company issues what is known as an “exclusion rider. An exclusion rider is a way for the insurance company to exclude coverage for a specific body part or a specific medical condition (e.g. right knee, uterine fibroids). Exclusion riders can be permanent (body part or condition excluded from coverage for the life of the policy) or temporary, (body part or condition excluded from coverage for a specific period of time.)

Often, if an exclusion rider is placed on a body part and the insured receives no further treatment on that body part or if the rider is in place to exclude a pre-existing medical condition and the insured’s condition completely resolves, the policyholder can request that the insurance company remove the exclusion rider from the policy. Typically, requests to remove a rider can be made after one or two years. Ultimately, the insurance company will make the final decision on whether the exclusion rider will be removed.

An HSA qualified HDHP (Health Savings Account qualified High Deductible Health Plan) may offer a more affordable consumer-driven healthcare option to individuals that are searching for a health plan with very low monthly premiums. Typically, these plans offer policyholders greater flexibility and control in where their health care dollars are spent. Plans often come with a fixed aggregate family deductible, which mean that a separate deductible does not have to be met for each family member on the plan.

In addition to the significant cost savings, policyholders can fund their Health Savings Account (HSA) to pay for routine medical expenses or alternative medical therapies, like acupuncture.  Any money in the HSA that is not used for medical expenses can be rolled over to the next year and excess funds can be transferred to a tax deductible, tax deferred, interest bearing account, commonly referred to as a “Medical IRA.” These types of health plans can offer tremendous tax advantages to policyholders. Not only can policyholders save money on their health insurance premiums, but they also can use these savings to build a nest egg for retirement. Many HSA administrators now offer thousands of no load mutual funds to transfer your HSA funds into so you can potentially earn an even higher rate of interest.

For more information on HSA qualified HDHPs, click here.

  • 3.  The third option is a “Small Group Health Insurance Plan.” This type of plan can be purchased immediately and might just be the answer for those individuals that that have been “declined” coverage for an “Individual” health plan. It might also be another option for individuals who are looking for coverage without an “exclusion rider” on a pre-existing medical condition. This is so because group health insurance provides “guaranteed insurability,” which means that all applicants and their families will receive health insurance coverage for all pre-existing medical conditions. However, the price can be exorbitant. Most States allow the insurance company to place an “underwriting premium load” as high as 67% on to a Small Group Health Insurance plan specifically because they can not exclude coverage for pre-existing conditions. In Indiana that load can be as high as 108% and in Michigan as high as 300%. Make sure to ask your Broker or Agent what the maximum underwriting load allowance is in your State BEFORE you apply for a Group Health Insurance Plan. In most States you must have a corporate Tax I.D. number and one other person (employee, Business Partner or Spouse) to enroll in the Group Health Insurance Plan with you. There are States such as Colorado that have “Self Employed Groups of One”. Check with your Broker or Agent for more information on what is available on a Guaranteed Issue basis in your State. Or call your State’s Department of Insurance.

On a Small Group Health Insurance plan, a large portion of the monthly premiums are determined by the health status of those individuals participating in the plan. This is important to remember as your company grows. Even if only one individual has a serious medical condition, that individual’s condition is likely to adversely affect everyone’s health insurance premiums. This means that even healthy group participants will pay a higher monthly premium. It may also mean that premiums can increase dramatically (up to the aforementioned 67% or higher) if someone covered on the group plan develops a serious condition or if an individual with a serious medical condition is hired at a later date.

The main advantage of a Small Group Health Insurance Plan is that it provides seamless continuation of coverage for those individuals who have pre-existing conditions such as Diabetes or Cancer providing that they have a minimum of 18 months of prior continuous health insurance coverage with no lapse in coverage of more than 63 days.

  • 4.  The fourth option is a State Insurance Risk Pool.” This option is primarily for individuals who have serious medical conditions and who have been “declined” individual health insurance coverage. Many states, but not all, provide individuals with pre-existing conditions the opportunity to obtain seamless continuation of health insurance coverage after their COBRA continuation expires, or if they lost their employer sponsored group coverage due to a policy cancellation and they were unable to obtain an individual health insurance policy on the open market because of their pre-existing conditions.

State Insurance Risk Pools often offer immediate coverage to individuals with pre-existing conditions that would normally render them “uninsurable” on the individual health insurance market. To qualify for a State Insurance Risk Pool, applicants must have elected Cobra continuation coverage and exhausted that Cobra continuation coverage for the full 18 months. Or, they must have lost their former employer sponsored group health insurance coverage through NO FAULT OF THEIR OWN. Meaning, that the employer cancelled the group health insurance policy altogether, thereby leaving the former employee with no Cobra (or State) continuation options. Although Risk Pool coverage is also available to those who have been “declined” coverage on an Individual Health Insurance policy, there is usually a 6 or 12 month waiting period before pre-existing conditions will be covered. There can also be waiting lists for this second type of State Risk Pool Coverage. To find if your State has a State High Risk Insurance Pool, click here

5.) With the recent passage of the PPACA (Patient Protection & Affordable Care Act) there have been new temporary taxpayer subsidized High Risk Health Insurance pools established in many States. $5 Billion has been appropriated (thus far) for these these Temporary High Risk Health Insurance pools. Because of this, the premiums are significantly lower than existing High Risk Health Insurance pools. You must also be uninsured for a period of 6 months before you can qualify. To find out more information about the new “Pre-Existing Condition Insurance Plan” visit: http://www.healthcare.gov/law/provisions/preexisting/

In all cases, Individuals should keep in mind when deciding whether to continue their health insurance coverage under COBRA that they will continue to pay for a health plan that was designed and purchased by someone else; specifically, their former employer. In addition, great portions of the COBRA premiums they pay are dependant, and will continue to be dependant, on the health status of their former employer’s group.

Since the majority of employer sponsored group health plans have a low deductible, monthly COBRA premiums will be significantly higher. Therefore, it is prudent for anyone considering COBRA continuation coverage to explore all of their health insurance options, especially an “Individual” Health Insurance Policy.

This is especially true if one is healthy and rarely goes to the doctor and continues a their employer sponsored group health plan that offers a $20 Copay for doctors visits and a $15 Copay for prescription medications. If these are benefits that the individual is not likely to use, they might want to think twice before selecting COBRA continuation coverage.

In fact, healthy individuals can usually reduce their COBRA premiums as much as 50% or more by purchasing an Individual Health Insurance policy with a higher deductible. Furthermore, families can experience dramatic savings and have more control over their health care expenses by purchasing an HSA qualified HDHP.

Regardless of the decision, it is important for consumers to explore all of their healthcare options prior to making a purchasing decision. Taking the time to perform your own due diligence before making a health insurance selection may not only save you money, but it may save your life.

To see a list of Frequently Asked Questions (FAQ’s) relating to Health Insurance, click here.

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