Laid off, what about health insurance

Laid off? What about health insurance. Typically, you have three options – COBRA, purchasing on own, and going without. Going without is a really bad idea, and if it can be avoided then do so. COBRA is another option, and with the American Recovery and Reinvestment Act (ARRA) of 2009 the government may pay for 65% of your premiums. The final option is purchasing directly.

How you choose between the three options depends upon age, health, family size, available assets, eligibility under ARRA, and state you live in. The younger you are the more tempting it may be to go without coverage. The problem is that health issues are often a “surprise”. More importantly, if you experience a health issue when you are not covered it will most likely be difficult to get coverage later.

For example, a person in their 20’s opts not to get insurance. (Health insurance for a 20 something is comparatively cheap, so I can’t imagine why anyone would do this.) While they are not covered this person finds out that they have diabetes. It will be difficult to then go out and look for health insurance because you now have a pre-existing condition. Usually, this ends up being an issue always. If you were covered before the diagnosis, then it would not inhibit you from changing plans. However, once diagnosed it is advisable to never be without coverage.

COBRA is mandated by federal law. Basically, it allows the employee to purchase similar (or the same) coverage they had during employment. Often it is very expensive. However, under the ARRA you may qualify to have 65% of the premiums paid. Therefore, you would only be responsible for 35% out of pocket. As an example I will use a COBRA premium of $1,000. If you are a family that is pretty close to what your cost could be. You would only have to pay $350 per month for continuation of coverage. That is a pretty good deal, and worth every penny.

Government subsidized COBRA does not apply to everyone. (I have included a link on the bottom for more information.) There are restrictions on who will receive assistance and it lasts for 9 months. So if you are unemployed longer than 9 months you may have to consider other options. Usually, it is the choice of purchasing on own or continuing COBRA. (COBRA is usually available for 18 months, government subsidy only for 9 of those.)

As I have said, COBRA may be $1,000 per month for a family. It could also be higher. Typically these plans have low, if any, deductibles. So it may be worth looking at purchasing insurance individually. You could purchase a higher deductible policy and deposit the difference until you have the deductible set aside. (I give a $ example on my blog.)

Here are some bullet points to consider when choosing between COBRA and individual purchase:

Are you eligible under ARRA
Is the 65% co-pay taxable in your state
Not taxable for Federal Income
Varies by state – Oregon likely to be taxable; Washington & California not taxable
What is the cost of purchasing directly?
This may be tax deductible
Given the money that you have, what is going to work best for you?