Managing Clients’ Health Care Finances After a Layoff
The author talks about why some clients should consider taking up COBRA health coverage continuation benefits.
The COVID-19 pandemic has led to the unemployment of more than 30 million Americans. Among the many challenges and uncertainties unemployment brings, how to receive health insurance coverage ranks high. Given the heightened health risk of the pandemic, this concern is more important than ever.
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Here are some ways advisors can educate their clients about the options available and guide them to the best choices as they transition to unemployment.
Where should advisors begin when a client has been laid off?
One of the most important details to clarify right away is when your client’s health insurance coverage ends. Some employer-sponsored coverage ends the last day of employment but, more commonly, it continues through the end of the month in which an employee was laid off. Once that month is over, your client will have several options.
Those who don’t anticipate having many health care needs, or who have significant savings in a health savings account (HSA), may feel comfortable exploring the Affordable Care Act marketplace, or the increasingly popular concierge care or direct-care services. Clients with chronic conditions that require frequent care or who want more comprehensive coverage should consider enrolling in COBRA (Consolidated Omnibus Budget Reconciliation Act). COBRA allows people to continue receiving their employer-sponsored coverage by paying the full monthly premium.
We’ve received feedback in the past that COBRA can be confusing. What are your thoughts on that?
It’s true that under normal circumstances, only a small percentage of individuals eligible for COBRA actually enroll. This is typically due to confusion around enrollment and the high premium cost, which may feel too expensive for those now without a regular source of income due to loss of employment. However, COBRA can be critically important and well worth the price, especially during a global health crisis like we’re experiencing now. Advisors can play a key role in demystifying COBRA and making the benefits clear, so that clients take advantage of it in their time of need.
What are the true benefits of COBRA?
COBRA has many benefits that may outweigh the cost of the premium. Continuity of care is a big one. Those with chronic conditions or who receive frequent health care services may save money in the long run by continuing comprehensive employer-sponsored coverage under COBRA. Further, if they have a physician or hospital relationship that would change with new insurance coverage, COBRA allows them to continue with this trusted care.
COBRA is also the quickest, simplest way to receive short-term protection. Researching and enrolling in a marketplace plan may not be worth the effort, especially if your client has reason to believe their coverage gap will last only 30 to 90 days before they get back to work.
Are there any other special considerations advisors should keep in mind when talking to their clients about COBRA?
Besides the benefits mentioned above, COBRA may prove particularly beneficial for certain individuals. For those who have had a high-deductible health plan (HDHP) and have already met most or all of their deductible for the year before being laid off, COBRA could be the best option, because their out-of-pocket costs for qualified medical expenses for the rest of the year will be greatly reduced or eliminated. If they don’t elect COBRA, they may need to start over with a new plan and a new deductible.
Those with a flexible savings account (FSA) should enroll in COBRA to protect the money they’ve previously contributed tax-free into the account. Without continuation of coverage, any unspent dollars in the account will be forfeited back to the employer when the health insurance is canceled.
Finally, if your clients are Medicare-eligible, make sure they understand the best course forward. Those who delay Medicare enrollment in favor of electing COBRA could face a penalty — and, when they do eventually enroll in Medicare, will lose their COBRA coverage. However, if they enroll in Medicare first and later elect COBRA, they will not lose Medicare coverage. Therefore, those eligible for both should enroll in Medicare first.
The cost of COBRA is significant for many people. Can you speak to any options for managing that cost?
There are a few potential sources of relief. Some employers choose to subsidize a portion of the premium cost for a period after a layoff as a gesture of good will. It is also quite possible that in the coming weeks or months, the government will announce subsidies for COBRA like those issued during the Great Recession. And lastly, consumers with HSAs can use those funds to pay COBRA premiums tax-free.
So, if COBRA is the right choice for a client, what’s the next step?
Consumers usually have 60 days from the time they receive an election notice or when coverage ends to enroll in COBRA. However, the Internal Revenue Service (IRS) and Department of Labor (DOL) recently extended the enrollment period, given the extenuating circumstances of the COVID-19 pandemic, which will offer your clients even more time to make this important decision. Additionally, people have 45 days from the date of their election to pay for the coverage. This means that an individual (who does not need immediate health care services) can take up to 105 days to decide.
Keep in mind, though, that if your client is deciding between COBRA or a marketplace plan, the special enrollment period for marketplace insurance is only 60 days. Those who wait to make a decision based on the COBRA deadline could miss their opportunity for marketplace insurance altogether.
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