What About My Health Insurance??!

• Email
• Share
• Print

Quick, what do these companies have in common -- Bank of New York (NYSE: BK), Pfizer (NYSE: PFE), and Ford (NYSE: F)?

Give up? They've all recently announced or completed job cuts.

Changing jobs, even voluntarily, is a stressful event, made even more so by fear and uncertainty surrounding the availability of health-care coverage. For a lot of people, this fear is even greater than the fear of losing their salary. After all, most astute Fools have an emergency fund and other savings set aside for such a contingency, but a single accident or major illness can wipe out that savings if you're not covered by insurance. By knowing the rules and recognizing your options, you can take some of the fear out of a scary situation.

What are your options?
The most desirable option would be to get a new job and with it, possibly new health coverage. I mention the obvious only because any new coverage will be subject to rules we'll get into later. In general, your old coverage will extend until the end of the month in which you leave, and new coverage will begin on the first of the month following your employment, but check with your plan sponsors to be sure. Keep in mind, too, that there may be a waiting period that necessitates the temporary use of other options.

Is your spouse working? Losing your job is a "qualified life event" that lets you get coverage under your spouse's policy even if the open enrollment period has come and gone. The choice between this option and the first often depends on the relative benefits, cost, and network availability of the two plans.

If your old employer had more than 20 employees, chances are you and your dependents will be eligible for COBRA coverage for at least 18 months -- in some cases more. Named for the Consolidated Omnibus Budget Reconciliation Act, COBRA allows departing employees to continue their current group coverage beyond termination. One important exception: If the firm has gone belly up or terminated coverage for all employees, it's not required to offer COBRA coverage. In fact, if your old firm was self-insured and filed bankruptcy, you may have to file a proof of claim in bankruptcy court if it has failed to pay on claims you incurred before it filed for protection -- see your lawyer on that one.

COBRA comes with a big catch, though -- you pay the full cost of coverage plus a little extra. That means instead of the possibly subsidized amount you had taken out of your paycheck, you'll be paying for your ex-employer's share of the cost, as well as your own. Still, as this is group coverage, it's likely to be cheaper than the final alternative -- individual coverage.

What about the dreaded "pre-existing conditions"?
When you pick up this new coverage, can your new employer/insurer deny coverage on pre-existing conditions? The short answer is most likely "no" if you've had coverage all along. Thanks to HIPAA, the Health Insurance Portability and Accountability Act of 1996, if you've had coverage for the preceding 12 months -- 18 for individual plans -- without a significant break in coverage, your new employer must waive any pre-existing condition limits to coverage. A "significant break" is defined in HIPAA as 63 days and may be extended by state law.

Obviously, you want to do everything you can to avoid any break in coverage, let alone 63 days, but if you don't, you still have a few protections under HIPAA. First, pregnancy may not be classified as a pre-existing condition, nor may it apply to newborns or adopted children under age 18. Second, genetic information alone may not be classified as a pre-existing condition; if you have BRCA1 or BRCA2 mutations but have not been diagnosed with or treated for breast cancer, this is not yet a pre-existing condition.

Third, to qualify as a pre-existing condition, there must have been medical advice, diagnosis, care, or treatment in the six months preceding the first day of coverage or, if there's a waiting period, the first day of that. A childhood allergy that's suddenly flared up with a new poodle in the house is not a pre-existing condition. Finally, the maximum period pre-existing conditions can be excluded is 12 months -- 18 if you're a late enrollee. The exclusion is not a lifetime sentence.

To prove to your new employer you've been covered, you'll need a Certificate of Creditable Coverage from your old employer or insurer. You should have received this with your exit package, but plans are required to provide you one within a reasonable timeframe if you ask. Employer plans, COBRA, and individual plans all count toward creditable coverage.

Like any set of laws, there are exceptions and nuances that a brief overview cannot cover. You may want to visit the U.S. Department of Labor for more information on COBRA and HIPAA, and, for your own particular set of circumstances, it may pay to consult professional counsel.

For more practical personal finance advice, be sure to try a free trial to Motley Fool GreenLight. Click here for more details.

Pfizer is a Motley Fool Inside Value pick.

Fool contributor John Dutemple, CFA, is president of Compton Advisors, LLC, a Missouri-registered investment advisor firm. He owns none of the stocks mentioned in this story. The Fool has a disclosure policy.