Apr 21 2014, 3:37pm CDT | by Forbes
There’s a new problem with Obamacare that affects anyone fired after March 31. Laid off workers who opt for temporary coverage under the Consolidated Omnibus Budget Reconciliation Act, known as COBRA, while they evaluate options under the Affordable Care Act, can’t switch to Obamacare until the next open enrollment period in November.
This creates a Catch-22, which can be especially devastating to those who have lost their jobs, says Donna M. Ballman, a Ft. Lauderdale, FL employment lawyer and author of the book, Stand Up For Yourself Without Getting Fired: Resolve Workplace Crises Before You Quit, Get Axed or Sue the Bastards. “It’s a huge issue for all those who lose their job outside of an open enrollment period.” And it hits them at a time when they are most vulnerable.
By way of background, under COBRA, if you leave the company or are fired you are entitled to continue your health insurance plan through your employer, and pay your own way. Even if your insurance was cut off when you were fired, the employer must notify the plan administrator within 30 days that you were terminated, and then the administrator has another 14 days to send you the notice on how to elect COBRA coverage. The downside is you must pay 100% of the premium, which will be very expensive, and COBRA coverage normally only lasts for 18 months. (See Ballman’s guest post, “What To Do For Health Insurance When You Lose Your Job.”)
Until recently, Ballman says, she would advise laid-off workers to elect COBRA temporarily, research the much less expensive coverage through the insurance exchanges marketplace offered under the Affordable Care Act, and then switch.
That all changed when the open enrollment period for Obamacare ended on March 31. Now if workers choose COBRA coverage, even for a month, they are trapped within its much more expensive coverage until the next open enrollment period, Ballman wrote in a recent post on Aol Jobs. That adds one more thing to cope with at a time when people are emotionally devastated from getting fired. Nor is it a decision that laid off workers can get help with when they call the Affordable Care Act hotline, since those manning the phones are only trained to tell them about Obamacare.
Note that in a limited number of situations, involving what the Affordable Care Act calls a qualifying life event, you can sign up for Obamacare outside one of the enrollment periods. For example, after losing your job you are allowed to enroll within 60 days whether or not your job loss coincides with an open enrollment period. Once your COBRA coverage expires (usually after 18 months) you can also enroll in Obamacare without waiting for the next open enrollment period.
Your employer cuts off your health insurance the day you are fired. First step: make sure they’re not cheating you out of coverage you’ve already paid for by having insurance premiums deducted from your paycheck. Then consider your options for future coverage.
Most people don’t have the presence of mind to get on the Affordable Care Act or choose COBRA right away, Ballman says. They wait a month or more to get the COBRA notice and then make the decision.
What happens if you have medical costs during the gap period? A client of Ballman’s lost her job and her health insurance the day before her four children had appointments for a checkup at the pediatrician. (Talk about bad timing!) At the doctor’s office, an administrative assistant told this poor mother that her health insurance was declined. If she elects and pays for COBRA, those expenses will be covered retroactively. But if the family chooses Obamacare, they aren’t. What’s more, it takes at least three or four days after you apply for Obamacare for it to cover you, Ballman says. So even if you applied for it right away, there would be a gap, and even a healthy person could have an emergency during that time.
You have a chronic or pending health problem. This creates a Catch-22 if you lose your coverage the day you lose your job. You will need to elect COBRA to cover expenses retroactively. And once you do that you can’t switch until the next open enrollment. “So either you have a gap in coverage or you’re trapped in COBRA,” Ballman says.
Your severance package includes payment of COBRA premiums. Often severance agreements provide that the company will pay a month or two of its share of the health insurance premiums, as if the employee was still working there, and apply them to the 100% COBRA payment for which the employee would otherwise be responsible. In the past this would be considered a favorable term. “But now if you accept that payment, you elect COBRA,” Ballman says. And that means you’re stuck with it. So a better strategy is to ask the employer to give the employee the cash equivalent of the COBRA premium, so the laid off worker can elect Obamacare and use the money to pay that premium instead.
Still, this strategy doesn’t work for everyone. For example, one of Ballman’s clients who recently lost her job is getting ready to have surgery in early May. She can’t afford COBRA coverage, but because of all the moving parts – whether the doctor and the procedure will be covered, for example – she needs to elect COBRA temporarily. The company that just laid her off has offered to pay for one month of premiums under COBRA. After that, the client will no longer be able to afford the premiums. She will most likely go uninsured for six months until the next open enrollment period, and pay the tax penalty for not being insured, Ballman says.
Ballman finds herself explaining this problem not just to clients and to colleagues who represent workers, but also to company lawyers who help put together severance packages.
The gap was unintended – something no one thought about – Ballman says. “Whether or not you agree with the Affordable Care Act, everyone can agree that this little glitch needs to be fixed,” she notes. “You should be able to elect COBRA, get your ducks in a row, then switch to Obamacare.”
She thinks President Obama could correct the problem administratively – through an Executive Order – “if enough people raise hell about it.” She’s leading the charge with a White House petition, which must get 100,000 signatures by May 4 to get to the President.
At the time of posting, the White House had not replied to FORBES’ request for comment./>/>
Deborah L. Jacobs, a lawyer and journalist, is the author of Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide, now available in the third edition.
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