The Little-Known Obamacare COBRA Catch-22
When I'm negotiating severance packages for employees, many times employers will offer to pay a month or more of COBRA payments. COBRA is the law that says employers have to let employees who lose their jobs stay on the company's insurance for up to 18 months as long as the employee pays 100% of the premium. Those premiums can be huge: $1,000 or more sometimes. Getting the employer to pick up some of the premiums can be a huge benefit.
Until now, that is.
The way that COBRA works is that your employer cuts your insurance off when you leave, then you get COBRA paperwork about 45 days later. When you elect COBRA and your employer or you pays the premium, you'll get coverage retroactively.
Under the Affordable Care Act, commonly known as ObamaCare, there was an open enrollment period that just expired on March 31, 2014. Before the end of open enrollment I was telling people to elect COBRA and then start applying for the exchanges so there was no gap. The exchanges are absolutely going to be cheaper than your COBRA. ObamaCare is a lifesaver, literally, for unemployed people who can't afford COBRA.
The next open enrollment isn't until November. Unless you qualify for the special enrollment period due to a change of circumstances, you have to wait until the next open enrollment to get covered by the exchanges.
You qualify for special enrollment if you lose your job or if your COBRA ends after open enrollment. Here's the kicker:
If you were on COBRA for even a month, you don't qualify for the special enrollment period until your COBRA period ends. You have to wait until the next open enrollment in November.
Loss of employment is a special circumstance that gets you into the special enrollment period, but failing to pay COBRA doesn't. You can choose between COBRA and Obamacare at the end of your employment, but you're stuck with your choice. To add to the confusion, I called the hotline for the exchanges, and they told me that if you even qualify for COBRA you don't qualify for the special enrollment, which is wrong according to the website, but it's an added problem that people will have to deal with. The ObamaCare website says this:
Here are your (completely s*#!y) choices if you lose your job after open enrollment:
I'm leaving my job and will be eligible for COBRA. Can I shop for coverage and subsidies on the Marketplace instead?
Yes, leaving your job and losing eligibility for job-based health coverage will trigger a special enrollment opportunity that lasts for 60 days. You can apply for Marketplace health plans and (depending on your income) for premium tax credits and cost sharing reductions during that period. If you enroll in COBRA coverage through your former employer, however, you will need to wait to the next Marketplace open enrollment period if you want to switch to a Marketplace plan.
- Choose ObamaCare: Until November, the next open enrollment, if you want to go on ObamaCare you will have to now ask your employer to not pay COBRA as part of any severance package, but instead to give the you the money so you can choose ObamaCare instead of COBRA. It will be a challenge to educate employers on this problem, and even more of a challenge to get them to agree.
The catch: You'll have a gap in coverage. You lost your insurance when you lost your job. The hotline guy I spoke with tells me that it takes 3 – 4 days to get ObamaCare coverage, and "possibly longer" due to delays. Plus, you probably waited awhile after you lost your job to start the process. That gap means any medical treatment you had between the time you lost your job and the time you get coverage will be out of your pocket.
- Choose COBRA: If you elect COBRA because you have medical expenses you need covered retroactively, or because your employer is paying a month or more of it, you're stuck with it for seven months.
The catch: You have to pay the outrageous premiums or lose coverage while you're waiting for the next open enrollment.
Here's what the ObamaCare website says about transitioning from COBRA to ObamaCare: "If you're planning to replace your COBRA coverage, it's important not to let your COBRA coverage end before your Marketplace plan starts. Otherwise there will be a gap in your coverage." No kidding. But after open enrollment, your choice is to get affordable health care and have that gap, or to pay the high COBRA premiums and skip paying, say, your mortgage.
This gap is, literally, a matter of life and death.
If you think this is a serious problem, tell President Obama by signing the petition I created. Do it today. I need 100,000 signatures to get the President's attention. This should be an easy fix. Let employees elect COBRA and then transition to ObamaCare. ObamaCare is a blessing for people who lose their jobs. Let's make sure they don't have to make this horrible choice between open enrollment periods.
Let's tell President Obama to close the gap.