When clients lose their medical coverage because an employer has financial problems, the clients often ask their insurance advisors for assistance.

Unfortunately, there may not be much that can be done to secure continued medical insurance through the employer’s plan. Sometimes even when an employee or beneficiary thinks there is medical insurance, if it turns out that there is none, there may not be an effective remedy.

Still, practical considerations do come up that advisors should know about. The following questions and answers discuss these issues in general.

(Note: A full discussion of requirements for continuation coverage under COBRA, the Consolidated Omnibus Reconciliation Act of 1985, is beyond the scope of this article. Such information is readily available elsewhere.)

In reading through the following Q&As, keep in mind that each situation is different. In addition, the rules under COBRA are complicated. So employees and plan beneficiaries should seek independent legal advice about their particular situations. This is just a general discussion of some of the issues, and it is not intended as legal advice, nor as a comprehensive discussion.

1. Are all employees entitled to COBRA benefits?

No. Small employers, churches and governments are excluded. In general, a small employer employs fewer than 20 employees.

2. My employer just went out of business. Am I entitled to COBRA?

No. Your employer must have a health plan for you to have COBRA benefits. Since your employer is out of business, there is no longer a health plan, and you cannot elect COBRA benefits.

3. My employer stopped paying premiums on my medical insurance, but did not tell us. Is there anything I can do to continue my health insurance?

Probably not. As mentioned above, your employer must have a health insurance plan for you to elect COBRA benefits. If your employer stopped paying the health insurance premiums, the plan would be cancelled by the insurer. While you may have a cause of action against the employer, if the employer is in financial trouble, suing the employer may not be worthwhile.

4. I incurred medical expenses thinking that I had medical insurance. I did not know that my employer plan had been cancelled for failure to pay premiums. Now the hospital is telling me that I have to pay the bill. What can I do?

Remember all those forms that you signed when you checked into the hospital? Well, you probably signed one that said you are responsible for the bill if the insurer does not pay. In general, even if you did not sign such a form, the hospital probably can pursue you for the outstanding balance on the grounds that you received the medical care.

5. When I checked into the hospital, they checked that I had insurance. The surgery was authorized. Do I still have to pay the bill?

Good question. Here you might be able to argue that you relied on the insurer’s representation that you were covered and would not have had the surgery otherwise. But, again, you probably signed forms, both with the hospital and way back when with the insurer, that say you are liable if the insurance does not cover the surgery for any reason. Here the reason would be that there is no coverage. While one would think that they could rely on the insurer’s indication over the telephone that there is coverage, that indication is usually subject to a determination of whether there actually is coverage or not.

6. I was paying the cost of medical insurance through a cut to my salary. The employer apparently stopped sending my money to the insurer. Now the insurer is saying I have no coverage. What can I do?

Probably not much. If the employer could be considered as an agent of the insurer, then the employer’s failure to forward the premiums could bind the insurer. But, insurers are very careful not to have the employer considered as an agent. You may have a cause of action against the employer, but, again, if the employer is having financial problems, that may not be of much help.

Douglas I. Friedman, a partner in the Friedman & Downey, P.C. law firm of Birmingham, Ala., is national counsel on estate and business planning for insurers. His e-mail is doug@fdlawfirm.com