รดรด

How to Manage Health Benefits When You Leave a Job

No matter if you quit, are laid-off, or get fired, it’s important to understand your rights and options for getting the most out of your health benefits from an old job. Money Girl reviews what happens with common health-related benefits once you’re no longer employed.

By
Laura Adams, MBA,
Episode #596
How to Manage Health Benefits When You Leave a Job

When you leave a job, there are usually some loose ends with your benefits that need to be tied up before your last day. Some perks end right away, but others continue after you leave or require you take some action to manage them wisely. No matter if you quit, are laid-off, or get fired, it’s important to understand your rights and options for getting the most out of your health benefits between jobs. In this post, I’ll review what happens with common health-related benefits once you’re no longer employed.

3 Health Benefits to Manage When Leaving a Job

The benefits you have at work vary depending on your industry, company size, and employer preferences. Once you know that you’ll be moving on, ask your human resources administrator about the health benefits you’re eligible for and how to access them after you leave.

Here’s what you should know about three health-related employee benefits when you’re no longer employed.

1. Health insurance

There’s no doubt that group health insurance is one of the most valuable benefits you can get as an employee. In general, your policy extends through the end of the month that you leave a job. For example, if your last day on the job is July 2, your health coverage will likely end at midnight on July 31.

Here are several options you may have to continue getting health coverage:

  • Enrolling in a spouse’s health plan
  • Enrolling in a parent’s health plan if you’re younger than age 26
  • Getting free or low-cost health coverage through Medicaid if you have low income
  • Getting free or low-cost coverage for young dependents through the Children’s Health Insurance Program (CHIP)
  • Shopping for a plan in the government’s health insurance marketplace

Depending on your income, these options may be more affordable than opting for COBRA, which I’ll cover in a moment.

You can learn more and compare individual and family health plan prices on the marketplace by working with an insurance broker, using health insurance websites, or visiting healthcare.gov. If your income is below certain limits based on your family size, you’ll qualify for a federal subsidy, which reduces your healthcare premiums.

Open enrollment for marketplace health plans is limited to the last few weeks of the year. However, losing your group coverage at work is one of several life events that qualify you for a special enrollment period or SEP to get coverage. But you only have 60 days to sign up for a marketplace plan after losing your insurance at work.

If you miss the special enrollment deadline, you generally won’t be able to get a marketplace plan unless you have another qualifying life event. These include getting married, having a child, or exhausting your maximum period of COBRA coverage.

2. COBRA continuation coverage

Now, let’s talk more about COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act. Even though the name of this law doesn't mention anything about health insurance, and it conjures up some scary images of snakes in baskets, it’s actually a good thing!

COBRA isn’t an insurance company or a health plan. It’s a law that gives you the option to continue your employer-sponsored health insurance after you’re no longer employed. So, instead of having your plan canceled the month you leave a job, you can use COBRA to continue getting the exact same benefits and choices that you had before you left your company.

COBRA protects everyone affected by the loss of group health insurance, including the former employee, his or her spouse, former spouses, and dependent children—when certain events occur.

For instance, let’s say your hours are cut and you’re no longer eligible for benefits. Or you get divorced or legally separated from a covered employee and no longer have coverage. These are all qualifying events that allow you to get COBRA.

But you’re not eligible for COBRA if your employer discontinues a health plan altogether or goes out of business. So, in order to get COBRA coverage, you must:

  • have a qualifying group health plan 
  • experience a qualifying event 
  • be a qualified beneficiary, such as a spouse or dependent of the former employee

If you’re not eligible for regular, federal COBRA, many states offer similar programs called Mini COBRA. To learn more, check with your state’s department of insurance.

The problem with COBRA coverage is that it’s temporary and can be expensive. Plus, it’s only offered when you work for a private company that has at least 20 employees or for a state or local government agency.

In most cases, you can use COBRA to continue your group health coverage for up to 18 months. If you’re disabled, you can get coverage for up to 29 months. And if you’re a surviving spouse or divorced from a covered employee, COBRA may continue for up to 36 months.

Also, COBRA isn’t just for medical coverage; it also applies to dental and vision insurance.

Also, COBRA isn’t just for medical coverage; it also applies to dental and vision insurance. As I previously mentioned, it must be identical to the coverage you were offered at your company before you left. You or your family are entitled to have the same coverage limits, co-payments, and deductibles.

While you can’t opt for more COBRA coverage, you can opt for less. For instance, if you were enrolled in health, dental, and vision coverage before leaving your employer, you could keep just the health plan and discontinue the dental and vision portions.

But note that you can’t get COBRA for other types of insurance you had, such as a life or a disability policy.

Unlike other federal benefits, such as the Family and Medical Leave Act (FMLA), employers don’t have to pay for COBRA. You typically have to pay the full cost, plus a 2% administrative charge, to the insurer.

Since employers usually pay some amount of the cost of group health insurance as a company benefit, the price of COBRA can be shockingly high compared to what you previously paid as an employee. If you’re negotiating a severance package with your employer, it’s worth asking your company to pay COBRA coverage for a certain period.

After you leave an employer, you should receive information about your rights to apply for COBRA. You must notify your human resources department within 30 days after a qualifying event (such as a termination or cut in work hours), that you want to elect COBRA continuation.

Your former employer must send you an election notice within 14 days. Then you (or your beneficiaries) have up to 60 days to decide whether or not to continue the coverage at the quoted price.

I recommend shopping and comparing the cost of COBRA to a private policy through the government marketplace. If you qualify for a subsidy, a marketplace plan may be much less expensive. But if you have high income and don’t qualify for reduced premiums, COBRA may cost about the same or even give you better benefits for the price.

Medical debt is the number one reason for bankruptcies in the U.S. Having health insurance is critical not only for your physical well-being but also for your personal finances.

Don’t make the mistake of thinking that you’ll just wait and get health insurance after you land your next job. If you get sick or need a trip to the emergency room, you could end up with a massive bill.

Medical debt is the number one reason for bankruptcies in the U.S. Having health insurance is critical not only for your physical well-being but also for your personal finances.

3. Health savings account (HSA)

Another health-related benefit that you may have at work is a health savings account or HSA. You’re eligible for this tax-advantaged account when you’re already enrolled in an HSA-qualified, high-deductible health plan.

The good news is that an HSA is portable, which means you own the account no matter if you leave your employer or where you get your insurance. The funds in the account, including amounts that may have been contributed by your old employer, are yours to spend on eligible medical expenses.

And you can continue using the account for qualified expenses for you or your family members, even if you don’t have a high-deductible plan or you’re uninsured. But if you spend HSA money on non-qualified medical expenses, the amount will be taxed as income, plus you must pay an additional 20% penalty.

However, if you reach age 65 and still have money in an HSA, the penalty doesn’t apply. In other words, if you spend it on non-qualified expenses, like a trip to Hawaii, it would simply be subject to income tax.

If you spend HSA money on non-qualified medical expenses, the amount will be taxed as income, plus you must pay an additional 20% penalty.

This rule turns an HSA into something similar to a retirement account if you own it long enough. That’s a great reason to max it out every year, even if you don’t expect to incur many medical expenses.

Here’s a quick review of how using an HSA saves you money.

  • Contributions are never taxed. An HSA is funded with pre-tax dollars, whether you make contributions, or your employer does so on your behalf. You can make tax-deductible contributions to an HSA at any time during the year, even up to April 15 for the previous tax year.  For 2019, you or your employer can contribute a total of up to $3,500 to an HSA if you have insurance just for yourself, or up to $7,000 if you have a family plan. If you’re over age 55, you or your employer can contribute an additional $1,000 to an HSA when you have either an individual or a family health plan.  
  • Earnings are never taxed. Most HSAs pay interest, similar to a bank savings account. Plus, you typically can invest all or a portion of your HSA in mutual funds to grow your balance faster. But unlike a taxable bank or brokerage account, interest or investment growth in an HSA is completely tax-free.  
  • Withdrawals are never taxed. When you take money out of an HSA, there are no taxes. This is true no matter if you withdraw original contributions, interest income, or investment earnings from the account to pay for qualified healthcare expenses. You can only use HSA funds to pay for current or future qualified, unreimbursed medical expenses. Otherwise, withdrawals are subject to income tax plus that hefty 20% penalty that I mentioned.

In addition to these three tax advantages, you can spend HSA funds on:

  • Long-term care insurance at any age
  • COBRA health insurance premiums after you leave a job
  • Health insurance while receiving unemployment compensation
  • Certain Medicare premiums after age 65

Free Resource: To quickly review important health savings account rules, download the HSA Cheat Sheet. This free, one-page guide explains eligibility requirements and some of the best places to get your HSA.

Get More Money Girl

To connect on social media, you’ll find Money Girl on Facebook, and Twitter. Also, if you’re not already subscribed to the Money Girl podcast on Apple Podcasts or the Stitcher app, both are free and make sure that you’ll get each new weekly episode as soon as it airs. The show is also on the Spotify mobile app. Click here to sign up for the free Money Girl Newsletter.

Businesswoman With Moving Box image courtesy of Shutterstock

The Quick and Dirty Tips Privacy Notice has been updated to explain how we use cookies, which you accept by continuing to use this website. To withdraw your consent, see Your Choices.