Ask Kim
Keeping Covered When You Lose Your Job
Should I keep the COBRA coverage through my former employer (which is expensive) or buy a cheaper temporary policy?
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
May 11, 2001
I was just laid off from my job at an Internet consulting firm, and I'm wondering what I should do about my health insurance. Should I keep the COBRA coverage through my former employer (which is expensive) or buy a cheaper temporary policy?
It depends on how healthy you are, how long you're out of work and how much you're willing to spend.
Temporary health insurance -- such as short-term policies offered by Fortis and Golden Rule -- is very inexpensive, which can be particularly attractive when you don't have a paycheck coming in. A 30-year-old would pay about $97 for a Fortis policy that provides 90 days of coverage with a $500 deductible. Raising the deductible lowers the cost even more.
But temporary health insurance has its drawbacks. You can only extend the coverage for up to 185 or 365 days (depending on the policy), which could leave you scrambling for another health insurance option if your job search takes longer than expected. Short-term policies also have more exclusions than most COBRA plans or individual policies -- they typically don't cover preexisting conditions, pregnancy or metal illness, for example.
COBRA coverage (named for the Consolidated Omnibus Budget Reconciliation Act) is more comprehensive but, as you discovered, more expensive too. If you worked for a company with 20 or more employees (fewer in some states), your employer must allow you and your dependents to continue coverage under its group plan for up to 18 months after you leave your job. You'll have the exact same coverage you had while working there -- which is good if you have preexisting conditions -- but you'll have to pay the entire cost of the insurance yourself, plus up to 2% extra in administrative charges. The cost can be much higher than expected if your employer had been subsidizing insurance for employees.
COBRA policies tend to include a lot of bells and whistles, which may be more coverage than you need if you're healthy and visit the doctor infrequently.
Another option is to find an individual health insurance policy that you can keep as long as you need -- a good option if you don't know how long your job search may take, or if you start working for yourself. In some states with competitive individual health insurance markets, like California, these policies can be affordable and have more comprehensive coverage than short-term plans. But in other states, like New Jersey, they're often prohibitively expensive. To find out about the costs in your area, get price quotes at eHealthInsurance or call a health insurance broker (the National Association of Health Underwriters Web site can help you find one in your area). For more information about buying individual health insurance, see "Buying Your Own Health Insurance."