Recession Riles Health Coverage
By: Dave Evans
Job losses have run rampant through the manufacturing industry. The subprime crisis has led to significant employment reductions at major banks. And high energy costs have caused job cuts at major airlines as they scale back on flights. With general economic malaise across the board, it is a difficult time to be unemployed. In addition to lost wages, a companion concern is replacing critical employee benefits that displaced workers count on to provide protection for themselves and their families.
Amidst the economic turmoil, independent insurance agents can offer unemployed customers some reassurance by providing alternatives to replace their former employer’s benefits. In investigating solutions, agents need to consider any benefits provided as part of a severance/termination package to the employee, federal and state laws that may provide special rights to terminated workers and their families, conversion rights applicable to group benefit plans and, of course, the private insurance marketplace. While these alternatives may provide insureds with options, a very real concern for a newly terminated employee is finding adequate funds to purchase the coverage—even if it is available.
Breaking Down COBRA
Perhaps the most important benefit out-of-work customers care about is medical insurance. Usually, group medical insurance provides better benefits than the individual medical marketplace and since most employers subsidize the cost of medical insurance, losing a job presents two concerns—replacing the coverage and being able to pay for it. The Consolidated Omnibus Budget Reconciliation Act of1986 (COBRA) provides workers with the right to continue their health coverage for a limited time after they lose their jobs. A former employee can continue coverage and is generally eligible for an extension of their group coverage for a maximum of 18 months (their dependents/beneficiaries maybe able to continue their coverage up to 36 months depending on the type of “qualifying event” that they encounter). However, not all employers are required to offer COBRA, which applies to companies with an average of 20 employees or more. A number of states have enacted laws lowering the threshold below 20 employees, so it’s important to check each state’s requirements. The maximum cost for employees opting to take COBRA is 102% of the active rate, with monthly costs ranging from $700 to $1,400—a considerable expense.
Another factor for insureds considering COBRA and/or the purchase of an individual policy are preexisting medical conditions—a prior condition and/or treatment the individual received. This means the new insurer can impose a waiting period for coverage for treatment related to the pre-existing condition. A classic example of this situation is a woman who becomes pregnant, but does not have medical insurance. Most states allow an 11-month waiting period, so a person cannot sign up for medical insurance one month prior to a scheduled delivery and expect the insurance company to pay for it. One answer to this problem for someone who has lost a job, but has a spouse whose employer offers medical insurance, is to opt to take the spouse’s coverage.
Pre-Existing Condition Limitations
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) provides some protections for these situations. In the case of a family where the spouse with medical insurance coverage loses a job, HIPAA requires that if other group health coverage is available (for example, through a spouse’s employer provided plan); “special enrollment” in that plan should be considered. It allows the individual and his/her family an opportunity to enroll in a plan for which they are otherwise eligible, regardless of enrollment periods. However, to qualify, enrollment must be requested within 30 days of losing eligibility for other coverage. Special enrollment rights also arise in the event of a marriage, birth, adoption or placement for adoption. Under HIPPA, the maximum length of a preexisting condition exclusion period is 12 months after the enrollment date. And some plans may have a shorter exclusion period or none at all.
The length of a preexisting condition exclusion period is shorter when someone can prove that they had prior health coverage, or “creditable coverage.” (See sidebar.) Most types of coverage can be used as creditable coverage, such as participation in a group health plan, HMO, COBRA, Medicare, Medicaid or an individual insurance policy. Accordingly, the maximum preexisting condition exclusion period under the plan is offset and can be eliminated by the amount of their creditable coverage. As long as the person did not have a break in coverage of 63 days or more, their creditable coverage can be used to reduce their preexisting condition exclusion period. Any coverage prior to a break of 63 days or more will not count as creditable coverage.
TAA Offers Help to Some Workers
Another avenue for some displaced workers is the benefits available under the Trade Act of 2002 (TAA) which created new programs that can assist certain workers. TAA provides assistance to workers who lose their jobs due to the effects of international trade (TAA-eligible individuals).Through grants to states, TAA-eligible individuals may be eligible for training, job search and relocation allowances, and income support while in training. TAA funds are allocated to states throughout the year. If a person wants to check on the status of TAA in their state, they can visit www.doleta.gov/tradeact or call the Department of Labor TAA Call Center at1-877-US2-JOBS.
Also, TAA created the Health Coverage Tax Credit (HCTC), a tax credit of up to65% of the premiums paid for certain types of health insurance coverage (including COBRA coverage). The HCTC may be available both to TAA-eligible individuals who are at least 55 years old, but not yet eligible for Medicare. Individuals who are eligible for the HCTC may choose to have the amount of the credit paid on a monthly basis to their health coverage provider as it becomes due or may claim the tax credit on their income tax returns after the end of the year.
Coping with the Cost
If cost is a major concern for someone who has lost their job—even if they are eligible for COBRA—there are a number of short term or “temporary” carriers that offer higher-deductible plans and less comprehensive coverage.
Some workers may hope their situation is temporary and find out later that it will take longer to find a suitable replacement job, so agents must clearly communicate the maximum policy period available. Independent agents looking to assist unemployed customers need to be diligent in exploring programs at the state and federal levels, as well as the private market, to find alternatives for their customers and provide the health insurance protection they need during a financially stressful period.
Evans (dave.evans@iiaba.net) is a certified financial planner and an IA contributing editor.
Keep an Eye on the Calendar
Making customers aware of the time frame for taking action is critical. If a customer is between jobs and doesn’t have health coverage for 63 days or more, then he/she may lose the ability to use their previous coverage to offset a preexisting condition exclusion period in a new plan. As long as any break is no longer than 63 days, it is not a “significant” break. Unemployed customers can count on different periods of prior coverage they had to accumulate 12 months of creditable coverage. For instance, if a customer had six months of group health plan coverage and a 30-day break in coverage, followed by eight more months of coverage, both periods of prior health coverage can be added together and counted. In this example, the person would have 14 months of creditable coverage to offset a preexisting condition exclusion period.
—D.E.
Access for Individuals
If an individual has to buy their own health insurance policy whether they quit a job, were fired or laid off, HIPAA guarantees access to individual insurance policies and state high-risk pools for eligible individuals if the following criteria are met:
• The person had coverage for at least18 months, most recently in a group health plan, without a significant break.
• The person lost group coverage, but not because of fraud or non-payment of premiums.
• The person is not eligible for COBRA continuation coverage or he/she has exhausted COBRA benefits.
• The person is not eligible for coverage under another group health plan, Medicare/Medicaid or has any other health coverage.
In addition, children in families that do not have health coverage due to a temporary reduction in income (for instance, due to job loss) may be eligible for the State Children’s Health Insurance Program (S-CHIP), a federal/state partnership that helps provide children with health coverage.
—D.E.
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