The Double Whammy-Layoff and COBRA

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June 20, 2012

According to the Bureau of Labor Statistics 2.1 million people were laid off from their jobs in 2009. Of the 2.1 million people laid off in 2009, nearly one half (46%) was age 45 or older. And some of these "older" workers may never work again and will lose their employer-provided health insurance coverage.

Cost of Workplace Health Insurance

The Kaiser Family Foundation's Employer Health Benefits 2011 Annual Survey cites that 58% of workers were covered by health plans offered by employers. Most of these employers pay a large part of the cost of employee health insurance coverage. And the costs are large. The average annual health insurance premium for individual coverage was $5,429 in 2011 and $15,073 for a family. Of this, employers paid 82% of the cost of the total premium for individual health insurance coverage and 72% of the cost for family coverage.

Cost of COBRA Health Insurance

When you lose your job due to a layoff, your employer no longer pays any portion of your health insurance premium--you must pay the full cost of coverage instead of the 18% to 28% you once paid. And if you continue your health insurance coverage by electing COBRA, you must pay the full premium plus a 2% administrative fee.

COBRA stands for Consolidated Omnibus Budget Reconciliation Act. This federal act requires certain employers to continue to make health insurance coverage available should you leave your company under certain circumstances (including layoffs). The language contained in the COBRA law and in the notices sent to former employees is complex, but the concept of COBRA coverage is quite simple. COBRA allows you to continue the exact same health insurance you had as an employee, but you have to pay the full cost of the coverage plus a little extra (2% admin fee).

Cost Increase Following Layoff

You Pay Per Month:







NOTES: using the Kaiser study data for individual health insurance coverage

  • Column #1: $452.42 ($5,429/12) - $370.98 ($452.42 * .82) = $81.44

  • Column #2: $461.47 ($452.42* 1.02 (2% admin fee))

  • Column #3: $380.03 (If you elect to continue COBRA medical coverage, your cost will increase from $81.44 (tax-free) to $$461.47 (after-tax) per month

For many mature workers, a layoff may mean a forced early retirement combined with a sudden loss of health insurance coverage. These workers have less money than they planned because they cannot find work to get them to normal retirement age and they no longer have employer-subsidized health insurance. COBRA health insurance coverage is a temporary option for these individuals, but the cost is usually not affordable.

Affordable Health Insurance Following a Layoff

Ironically, one of the most critical times to have health insurance coverage is following a layoff. A layoff can cause mental stress that can lead to physical ailments and the need for quality health care. Also, poor health may delay getting back to work. But who can afford to pay four times or more than they use to pay for health insurance when they are not receiving a paycheck? Unless you have a well-funded emergency fund or other savings, chances are you will not replace the insurance coverage you had as an employee. However, you may be able to afford some health insurance coverage. To find out what you can afford during a layoff:

  1. Determine your health care needs – Are you fairly healthy; take no medications; require only an annual physical…? Or do you have a serious disease or illness; take several medications; require several doctor’s visits per year…? Or are you somewhere in between…?

  2. Create a Budget – Prioritize your expenses (health insurance should be high on your list of important items to continue paying). Eliminate expenses that are not a high priority to free up cash for health insurance coverage

  3. Check out state resources (Medicaid, CHIP) that may pay all or part of the costs for health insurance for you and or your dependents

  4. Contact major health insurers in your state for quotes based on your health care needs only. Buy only what you think you may need for the next 12 months

  5. Pay for health care directly (called self-funding) if you are in good health and have the funds available. This is risky and should be used as a short-term option

  6. Pay for COBRA for as long as you can afford it or find a lower cost option

  7. Contact your elected officials and tell them to provide the same tax breaks for individual health insurance as they do for employer-provided health insurance. It is not fair that as an employee receiving employer-provided health insurance coverage, you pay your portion of the premium with tax-free dollars, but pay with after-tax dollars when you purchase coverage on your own

If you receive a layoff notice followed by a COBRA election notice, spring into action. Review your health care needs and search for an affordable option like your life depends on it, because it may.

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