Health insurance after a layoff

Health coverage is the deadline that bites hardest after a layoff, because both of the ways to replace it close 60 days after the old coverage ends, and one of them is far more expensive than people expect. The rules for each are set out by the Department of Labor and by HealthCare.gov, and the comparison is simpler once the numbers are in front of you.

COBRA: the same plan, at full price

COBRA is a continuation right. The Labor Department's employee guide explains that group health plans of employers with 20 or more employees in the prior year must offer employees and their families a temporary extension of the same coverage when it would otherwise end. Losing a job, other than for gross misconduct, and a reduction in hours are the qualifying events that matter here, and for those events the maximum period is 18 months. Other events, such as a divorce or a dependent child ageing out, carry 36 months, and the 18-month period can be extended in two circumstances the guide describes: disability, and a second qualifying event.

The cost is the whole premium. The employer's share, which most people never see on a pay stub, stops, and the plan may charge up to 102 percent of its cost for similarly situated participants. A family plan that cost a few hundred dollars a month in payroll deductions can cost four figures under COBRA, which is the surprise.

Two features of COBRA are genuinely useful. The election period is at least 60 days from the later of the plan's notice and the loss of coverage, and once elected the coverage is retroactive to the day it ended, so there is no gap. And the plan must allow at least 45 days after election to make the first payment. Together those mean a person who expects new coverage within weeks can hold the election in reserve, elect only if a claim arises, and pay only then. The guide's warning is that the deadlines are strict: miss the election window and the right is gone.

The Marketplace: new coverage, with a subsidy if income has fallen

Losing job-based coverage, including COBRA, is a qualifying life event for a special enrollment period on the Affordable Care Act Marketplace. HealthCare.gov states the window as selecting a plan within 60 days before or after losing the coverage, and coverage can begin the first of the month after the plan is chosen, or in some cases from the date of the event.

The Marketplace premium depends on household income for the year, because the premium tax credit is calculated on it. A layoff that cuts the year's income below what the old salary implied can make a Marketplace plan far cheaper than COBRA. Severance and unemployment benefits count as income for that estimate, and the credit is reconciled on the tax return, so the estimate should be honest and updated if the picture changes.

How to compare them

Put the two side by side for the same month. For COBRA: the full premium from the election notice, and the fact that deductibles already paid this year carry over because it is the same plan. For the Marketplace: the premium after the estimated credit, the plan's deductible starting from zero, and whether your doctors and prescriptions are in its network. A person mid-way through an expensive course of treatment often does better on COBRA for the rest of the year; a healthy person with a large drop in income often does better on the Marketplace from the first month.

Employer-paid COBRA is a common severance term, and severance: what is negotiable covers asking for it. If the employer pays the premium for several months, the choice can be deferred until that period ends, when losing COBRA itself opens a fresh special enrollment period.

The notices to watch for

The plan must send a COBRA election notice after the employer tells it of the qualifying event; the guide describes the timing the law allows. If it has not arrived within a few weeks, ask the plan administrator in writing. The election notice is the document that fixes the 60-day clock and states the premium, and it belongs in the same folder as the layoff letter and the severance agreement described in the first 30 days after a layoff.