Health Insurance Continuation Laws

With the high cost of health care today, health insurance continuation is an important consideration for many unemployed individuals, job changers, dependents of covered workers, and retirees who no longer receive employer-provided benefits. Despite several laws in effect that make it possible to extend employer-provided health insurance, some workers continue to experience "job lock." This is a situation where workers, particularly those with pre-existing health conditions, feel that they must remain in a particular job for fear of losing their health insurance coverage.

Two federal laws that govern the continuation and portability of employer-provided health insurance benefits are the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) and the Health Insurance Portability and Accountability Act of 1996 (HIPAA). While each of these laws has its benefits, neither helps people initially get insurance on their own (e.g. young adults after parents' benefits and COBRA end), nor do they reduce the cost of health insurance premiums. Another related health insurance continuation law, passed in New Jersey (effective May 2006), allows unmarried adult children to remain as dependents on a parent's health insurance plan through age 30.

Below is a description of each law, including a description of who is and is not covered, time limits, advantages and disadvantages, required actions to retain coverage, and other important details:

COBRA

Provides continued group health insurance, at premiums of up to 102% of cost, for up to 18 months (terminated workers) or 36 months (dependents of covered workers who lose coverage through life events such as widowhood or divorce). Coverage is voluntarily within specified time limits. Only about 20% of those eligible for COBRA benefits choose to remain on a former employer's health plan.

Who's Covered

• Employees at companies with 20 or more workers and a group health insurance plan who lose their health insurance coverage due to voluntary or involuntary termination (except in cases of gross misconduct), reduced work hours, or retirement (until becoming eligible for Medicare).
• Widows and divorced spouses who become ineligible for health insurance coverage through the end of a prior marital relationship with a covered worker.
• Adult children of covered workers who lose "dependent child" status under health plan rules.

Who's Not Covered

• Employees of companies that do not offer health benefits.
• Employees of small businesses with group health coverage but less than 20 workers.
• Employees of cash-strapped companies that go out of business or terminate their group health plan.

Alternative Sources of Health Insurance When COBRA is Not Available

• Family coverage provided by a spouse's employer.
• Individual health insurance policy purchased in the private health insurance market.
• State-provided health insurance benefits (e.g. Medicaid, NJ FamilyCare), if income-eligible. NJ FamilyCare provides affordable health care coverage to uninsured children and certain low-income parents. Visit NJ FamilyCare program for further information.

Important Features

• Eligible COBRA participants (terminated employees and dependents) have a right to the same coverage as active workers (e.g. vision and dental benefits, if available).
• Employers must provide written notification about the right to elect continuation coverage under COBRA to eligible workers and dependents.
• Qualified individuals who elect COBRA benefits are required to pay up to 102% of the cost of the group health plan based on a premium schedule set by the employer (e.g. quarterly).
• Failure to make premium payments on time may result in loss of coverage.

• Less than 60% of the U.S. workforce is eligible for COBRA benefits.
• "Sticker shock" for workers used to an employer paying all or most of the cost of their health insurance. Individual and family COBRA premiums of $250 to $300 and $600 to $700 per month, respectively, are common. Although COBRA premiums may seem high, they reflect group rates and are usually less than premiums for individual policies. Nevertheless, COBRA premiums are costly, especially if a family has lost its income, as well as health insurance, due to unemployment.
• Receiving a serious health diagnosis (e.g. diabetes, cancer) while on post-employment COBRA coverage will make it very difficult and expensive to purchase an individual policy if you can't land a job with health benefits before COBRA benefits expire.

Required Action Steps

• Employees, or their family members, are responsible for notifying the plan administrator about life events that affect the status of covered dependents.
• Qualified individuals have 60 days, beginning the later of the date of the qualifying event (e.g. unemployment and divorce) or the date of notification from the plan administrator, to indicate if they wish to continue on the group health insurance plan by paying COBRA premiums. Otherwise, they lose all rights to COBRA benefits.

HIPAA

Provides workers and eligible family members with pre-existing conditions guaranteed immediate coverage under a new employer's health insurance plan if they were insured for at least 12 months with a former employer. The intent of HIPAA is to reduce "job lock" by lessening the risk of loss of health coverage associated with a change of employers. Eligible workers who change jobs aren't subject to a waiting period (often a year) for medical expenses associated with a pre-existing condition (e.g. a history of cancer) unless they have a lapse in insurance coverage of more than 63 days.

Who's Covered

• Workers who change employers and switch from one company health plan to another.
• Workers who leave a company with health benefits to launch a small business/consulting firm with an individual policy, but only if they were covered by a group plan for at least 18 months and have exhausted all available COBRA benefits for an additional 18 months, if eligible.

Who's Not Covered

• Workers who leave a company with no health benefits to launch a small business/consulting firm.
• Workers with interruptions in health insurance coverage of more than 63 days. If there is a break in coverage, a new 12-month exclusion period for coverage of pre-existing conditions will apply.
• Workers who bypass COBRA coverage in favor of a group health conversion plan (i.e. individual coverage offered by a former employer's group plan insurance company) and later want to enroll in another individual plan.
• Workers who lack previous coverage and need health insurance to begin with.

Important Features

• The maximum waiting period for workers who don't have 12 months of continuous prior health plan coverage is 12 months (18 months for late enrollees).
• Gaps in health coverage between jobs is reduced, but not eliminated, through the HIPAA law.

• HIPPA does not require employers to provide health insurance, nor does it contain premium costs.
• Employers are free to require a general waiting period before employee health benefits begin, typically one to six months. If this is the case, it may be wise for workers to retain COBRA coverage from a previous job during the "gap" until they are eligible for a new employer's benefits.
• New employers do not have to provide the same level of benefits offered by a previous employer.

Recommended Action Steps

• Never leave a job without thoroughly exploring the impact upon health insurance benefits.
• Save all correspondence that documents the length of enrollment in a former employer's health insurance plan.
• Contact your current and/or former employer's human resources department with questions about your rights to continued coverage.
• Visit the U.S. Department of Labor Employee Benefits Security Administration web site for additional information about COBRA and HIPAA.

New Jersey Health Insurance Law Covering Dependents Under Age 30

Dubbed the "18 to 30 bill," this law that extends the "age of dependency" for family health insurance coverage was passed to address the problem of young adults "aging out" of their parent's health insurance before obtaining adequate coverage on their own. Many employer-provided policies drop children from coverage at specified ages, such as 19 or 23 (if attending college).

• Requires health insurance companies in the state to extend coverage for eligible unmarried dependents on a parent's family health insurance plan to age 30 (effective May 2006). This law was passed because young adults comprise a large percentage of those lacking health insurance. About a third of people ages 19 to 29 in the U.S. are uninsured.
• Coverage applies only to single individuals without dependents. They must be New Jersey residents or enrolled full time at an accredited higher education institution and cannot be covered by another insurance policy.
• The law does not require eligible adult children to attend school or live with their parent(s).