Gaps in health-insurance coverage can open
under many circumstances. You changed jobs and the new insurance doesn't become
effective immediately; you just graduated from college, can no longer be
covered under your parents' plan and have not yet lined up a job with health
benefits; you're between jobs, and don't know when you'll work next.
Even the smallest gap is cause for anxiety, since unexpected
hospital bills paid entirely out-of-pocket can be financially draining.
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Fortunately, many short-term options are available. Some
people choose to continue their group health coverage when they leave a job
under requirements set forth by the Consolidated Omnibus Budget Reconciliation
Act of 1985 (COBRA). Others obtain temporary continuation of their coverage as
set forth by state laws. Still others buy an individual short-term plan.
Knowing the pros and cons of each option can help you decide
upon the plan that's best for you.
"COBRA is a federal law that covers private- and
public-sector group (health) plans with 20 or more workers," says Paul
Fronstin, senior research associate at the Employee Benefit Research Institute
(EBRI) in Washington, D.C. The goal of the law is to relieve hardship imposed
on workers and their families when they leave a job by providing a transition
period before other coverage becomes effective. Under COBRA, employers with
health-insurance plans must offer continued access to group health insurance to
qualified persons if they lose coverage as a result of a "qualifying
event" -- such as when a worker's employment ends for reasons other than
Coverage continues for 18 months or longer, depending on the
situation. For instance, spouses and dependent children of workers who die,
divorce or legally separate can be covered for 36 months.
Premiums may be hefty compared with what a worker
contributed as an employee. Under COBRA, departing workers can be required to
pay up to 102 percent of the premium. Still, Fronstin views the COBRA-plan
option as a less expensive, more comprehensive choice than buying medical
insurance as an individual. In a commentary published by EBRI last year,
Fronstin wrote, "Employment-based health insurance typically covers a
larger array of benefits than individually purchased health insurance for an
Some states have "continuation of coverage" laws that apply to firms
with fewer than 20 employees. A few states passed continuation of coverage laws
before COBRA was passed and, in general, extend coverage for three to six
months, according to Fronstin. To find out whether you're covered, consult your
company's human-resources department. Or, check with your state's health
department or insurance commissioner.
Companies offering short-term policies can be found easily
on the Internet (using a search engine, enter the key words "temporary
health insurance" or "short-term health insurance"), or by
consulting an independent insurance agent.