The Transition from Employer-Sponsored to Individual Coverage Under ObamaCare

linkedin-df-bannerMaintaining minimum essential coverage under the new ObamaCare law can be difficult for those experiencing certain changes in their job status. It’s not easy for employees experiencing a reduction in hours or termination of employment to transition from employer-sponsored group health plans to Individual coverage. Terminated employees may find that their best option leaves a gap in coverage of up to several weeks. Part-time employees may be stuck paying premiums on coverage they cannot use or change.

The government has taken steps to address such issues in the past. Congress’ 1986 Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions were created to let employees and other qualified beneficiaries (spouses, former spouses, and dependents) enjoy group health coverage up to 18 months after job termination. COBRA coverage generally covers individuals retroactively to the date previous coverage was lost, making it an attractive choice for retirees and former employees.

Expiring COBRA coverage and loss of a job qualify individuals for a special enrollment period, which allows them to choose an individual coverage plan. (Those who do not qualify for a special enrollment period must wait until the next open enrollment period, which in 2015 starts November 1.) There are some benefits to securing Individual coverage. Not only is Individual coverage usually cheaper than COBRA coverage the employee has a broad choice of options.

Individual coverage, however, usually takes effect on the first day of the next month after enrolling. This could create a gap in coverage of up to several weeks if the employee forgoes Cobra. Because individuals can elect Individual coverage 60 days before or after termination, those who know about the termination beforehand can cover the potential gap. Individuals who lose their jobs suddenly and do not have the time to plan for change in coverage are at a disadvantage. They have to choose between the more expensive but retroactively effective COBRA plan and an individual or marketplace plan, which may leave a gap of several weeks in coverage.

One category of employees are at particular disadvantage: individuals covered under an applicable large employer’s health plan whose hours are reduced during a stability period (according to the look-back measurement method). Such individuals do not lose their minimum essential coverage and have, therefore, no special enrollment or COBRA rights. They must continue to pay the employee portion of their group health premiums in accordance with a cafeteria plan election and cannot enroll in Marketplace coverage until the next open enrollment period.

COBRA coverage can help former employees transition from an employer group health plan to Individual or Marketplace coverage, but it isn’t a cure-all. There are some sticky situations which oversights in the law don’t address, leaving some part-time and former employees with unsatisfactory options for transitioning to Individual plans outside of open enrollment.

As always, we are here to help you any way we can. Please don’t hesitate to call or email if you need us.

The Deerfield Team
800.233.6428
info@deerfieldadvisors.com 


References:


Bianchi, Alden J. “The Affordable Care Act—Countdown to Compliance for Employers, Week 27: COBRA, Marketplace Coverage, Stability Periods, and Cafeteria Plan Elections.” ACA Countdown to Compliance, p 78-79. June 23, 2014. 
http://www.employmentmattersblog.com/files/2015/02/ACA-complete-v5.pdf

U.S. Centers for Medicare & Medicaid Services. “COBRA coverage and the Marketplace.” healthcare.gov/unemployed/cobra-coverage

U.S. Department of Labor. “COBRA Continuation Coverage.” dol.gov/ebsa/cobra

U.S. Department of Labor. “FAQs about Affordable Care Act Implementation (Part XIX).” dol.gov/ebsa/faqs/faq-aca19

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