What Happens to my Health Insurance if I Quit my Job?

Everything you need to know about the future of your health insurance policy before quitting your job.

Health insurance is an essential tool to have. It takes care of your medical expenses which can be quite costly. Health insurance provides you a stress-free experience in case of any injury or illness.

However, health insurance policies can be job-based health insurance policies in which the coverage is offered to them by an employee. Often times these benefits are provided by an employer which become an important motivating factor for an employee.

However, in a situation where you are considering quitting, it is important to know what will happen to your health insurance after quitting your job.

How long is health insurance active after termination?

Health insurance coverage essentially ends on the last day of your job if you have been on a job-based coverage plan. It is the same regardless of you quitting or being terminated. However, how long your health insurance is active depends on the kind of coverage you have. Some coverage plans continue till the end of the month after which they expire and some coverage plans end on the day your employment with the company ends. This is something you need to take a look at in your policy agreement beforehand so you are clear about the consequences in terms of health insurance. To find out when your policy will end, you will have to contact your employer’s benefits administrator.

Now, we understand how the worst part of losing a job, regardless of whether it was your decision or not, can be losing your health insurance coverage. But you do not necessarily have to lose it. What if I told you there is a way you can quit without having to let go of your insurance coverage? And this is where the COBRA insurance comes in.

What is COBRA Insurance?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a health insurance program that will provide you the same coverage plan that your former employer provided for up to 18 months. Which means, even though you would not be working for your previous employer, you could still have the same coverage and continued benefits after quitting your job. However, it is also available for employees who are laid off, fired but not for “gross misconduct”, without insurance due to your employer cutting your hours or without any coverage due to a divorce, spouse’s death or other qualifying events as such.

Your employer is required to inform you or your dependents about the COBRA insurance within 30 days of your last day as their employee. In case of your death, your employee can inform your spouse about COBRA. Moreover, if you or a dependent suddenly qualify for COBRA, in case of a divorce or a child turns 26, you are required to inform your employer within 60 days.

You will have 60 days to decide whether or not you want to sign up for COBRA and even if you decline insurance, your dependents will have the chance to approve it if they want. And if you change your mind after initially rejecting COBRA, you will have 60 days to change your mind after which the COBRA insurance will not be available to you.

Because COBRA allows you to continue your employer’s coverage plan, it can cost you a lot. You will have to pay the entire tab in premiums plus upto 2% administrative costs. Keep in mind that your employer is no longer involved in the process thus, will be of no help to you.

However, one cost-effective way to determine whether you actually need COBRA insurance is to wait 30 days to see whether you can live without it until you find another employer. This way you will save yourself from the costly burden of paying the premiums. However, if you realise you do need the coverage, you can easily get the retroactive coverage back to the qualifying day i.e. the last day of your employment. One disadvantage of that is the fact that you will have to pay for that entire period even if you opt for the insurance 60 days later. Basically, if you sign up on day 59, you would be eligible to pay premiums for the past 59 days as well.

 

COBRA also has a conversion period in which you can convert your group insurance to an individual insurance plan within 31 days of termination of employment. The insurer is required to accept this conversion and you will not be required to submit any certification.

Another question that gets asked a lot is, “how does cobra work if I get a new job?”

COBRA can work even if you get a new job. However, it is essential to keep in mind that COBRA is only meant to be a temporary fix for your health insurance needs. It will provide you coverage for only 18 months after which the policy will lapse unless you or a dependent is disabled due to which you can extend your policy coverage for 18 months more.

COBRA is also a very expensive option as you have to pay 110% of the premiums. It is not a long term solution as paying the premiums every month will prove too expensive to keep up.

In this situation, the best option would be to move to your new employer’s health insurance policy as that will be cheaper and more of a long term fix unlike the COBRA insurance.

However, if you cannot afford COBRA or have the option to continue COBRA, neither do you have a job which can provide you a group health insurance policy, your best bet would be to purchase a short-term individual policy if you really need health insurance. This kind of policy will provide full coverage and allows you to determine what kind of plan it should be and the deductible amount is also decided by you. A short-term policy usually lasts from 1-12 months and is good for someone who is in between jobs.

You may be subjected to early termination of your COBRA policy before the 18 months are up if:

  • You fail to pay your premiums on time.
  • Your employer does not maintain a group health insurance plan.
  • You have a qualified beneficiary that has gained coverage under another group health insurance plan, in case of getting a new employer, and has become eligible for Medicare Or the qualified beneficiary has engaged in misconduct, such as fraud.

So, to answer the question “What happens to my health insurance if I quit my job?”, your health insurance might end depending on what your policy says about the termination date. However, you would not be left in the lurch as you can apply for the COBRA health insurance within 60 days of your termination. It would be advised to wait and see whether health insurance is an essential need for you. If it is, you can apply for COBRA health insurance. But if you cannot afford COBRA, you can choose to apply to any short-term health insurance plans that are specifically designed to help you with your short-term health insurance needs, at least until you are on your new employer’s group health insurance coverage plan.

Nabeel Ahmad

Nabeel Ahmad

Nabeel Ahmad is the founder and editor-in-chief of Insurance Noon. Apart from Insurance Noon, he is a serial entrepreneur, and has founded multiple successful companies in different industries.

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