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Health insurance options when you are unemployed

COBRA is pricey, but there are other less expensive options for comprehensive coverage.

January 19, 2009|Francesca Lunzer Kritz

For people who've assumed they'll take the option of continuing their employer-based health insurance -- at their own expense -- if they lose their jobs during 2009, it was sobering news. For those who have lost their jobs, it was painfully unsurprising.

In a report released earlier this month, researchers found that the average national cost of that coverage (an option known as COBRA, an acronym for the legislation that created the opportunity) eats up 30% of unemployment benefits for individual coverage and almost 84% for family coverage.

"COBRA health coverage is great in theory and lousy in reality," said Ron Pollack, executive director of health insurance reform advocacy group Families USA, based in Washington, D.C. The group announced the results of its analysis Jan. 9.

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COBRA cost's sticker shock

The report is especially worrisome because even at COBRA's very high costs, it is "often the only option for people who are looking for comprehensive coverage -- particularly if they have any kind of health problem," says Karen Davenport, director of health policy at the Center for American Progress, a liberal think tank in Washington, D.C.

Companies are permitted to charge, and generally do, the full cost of premiums plus a 2% administrative fee. COBRA must be offered by firms with 20 or more employees as long as they continue to offer health coverage. Generally, it's offered for 18 months after a job ends, though in some circumstances that can be extended. In many states and in the District of Columbia, health insurance options similar to COBRA must be offered by firms with fewer than 20 employees.

The staggering cost of COBRA can come as a surprise because employers often pay a very large -- and frequently unrecognized -- share of health insurance premiums.

In 2008, employees paid an average of 16% of premiums for individual coverage and an average of 27% for family coverage, according to the Families USA report. But once the employer drops the cost-sharing, premiums soar. Last year, the full COBRA costs for an individual reached a national average of $4,656 per year, or $388 per month. The full cost for family coverage hit a national average of $12,823, or about $1,069 per month.

In California, individuals receive an average monthly unemployment benefit of $1,322 and pay an average monthly COBRA payment of $380, or almost 29%, of the jobless benefit. Californians with families receive that same $1,322 unemployment benefit, but COBRA premiums for families can rise to $1,079 per month, or 81.6% of the unemployment benefit.

Many individuals and families take their chances and hope they won't need medical care before regaining employment and, they hope, health insurance benefits kick in again. But that is not an optimal choice, says Families USA's Pollack. In addition to the potential for devastatingly high medical costs if a health emergency does spring up, going without coverage can affect health insurance coverage later on, particularly for a preexisting medical problem.

We asked Pollack and other health insurance experts to suggest insurance-related steps people should take in the event of unemployment.

* Check whether you can be added to your spouse's coverage. Even if the benefit year has begun, a plan may allow the addition of family members due to a major event (such as a spouse's job loss). Being added to a spouse's plan is likely to be far less expensive than COBRA.

* Act quickly. The option to sign up for COBRA generally lasts only 60 days from the time your employer sends you a notice about it, according to the Department of Labor.

* See if your kids are eligible for health insurance coverage under public health programs such as Medicaid or SCHIP, the state's children's health insurance plans. The state program is income-based and charges about $15 per child per month for premiums, says Mabel Ponce-Koch, director of the Health Consumer Alliance in Los Angeles. On Wednesday, the U.S. House of Representatives voted to expand the federal program to millions more children. The legislation is expected to soon be approved by the Senate and then quickly signed into law by the president.

If the kids can be covered under public programs, parents can opt for less expensive one- or two-person coverage under COBRA or an employed spouse's coverage, if the employer charges a lower premium for two people than for a larger family, says Cheryl Fish-Parcham, deputy director of health policy at Families USA.

Find out if your children qualify for state plans by contacting California's Healthy Families at www.healthy families.ca.gov or (800) 880-5300. If you're told your kids don't qualify, contact the Health Consumer Alliance (healthconsumer.org or [310] 204-4900) to see if the decision can be appealed, and for other healthcare resources.

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