Calloway Cook of Northampton, MA, was working as an analyst at one of the country’s biggest SEO firms when he decided to take a risk in 2019 and venture out on his own. “It was a good job, but I quit to launch my own eCommerce business called Illuminate Labs,” he says.
While Cook was excited to take the leap, he wasn’t totally clear on what he would do for health coverage.
He’s not alone. In fact, he’s part of a phenomenon that the media has dubbed the “Great Resignation.”
A record 4.3 million American workers quit their jobs in August, and another 4.4 million gave notice in September. So did 4.2 million people in October.
But in a country where health insurance is often tied to employment, it gets complicated. Here’s what you need to know about health care before you give notice -- and what some wish they had known before they quit.
Cook had heard of COBRA, a type of continuation coverage typically offered to full-time employees, but it wasn’t until he dug into the details that he discovered how costly the option could be.
COBRA, or the Consolidated Omnibus Budget Reconciliation Act, is a law that gives employees and their families who lose their health benefits the right to choose to continue receiving benefits provided by their group health plan for a limited period of time.
Sounds convenient if you’re looking for a seamless health care experience as you transition from one job to the next or if you’ve unexpectedly lost your job, right? But COBRA is notoriously expensive. In fact, you might have to pay the entire premium for coverage up to 102% of the cost to the plan.
Here’s why. Employers typically pay part of the cost of active employees' coverage. But former employees are on the hook for the full price of the premium.
The bottom line: Once you leave, you’re paying the full tab.
"I was definitely shocked when I checked the cost of COBRA, and relieved that I didn't have to pay it, even though I would have been able to,” Cook says. “I think many people aren't aware of how expensive the health care options are for those without income.”
“Here's what I wish I had known before quitting: Check your state's Medicaid benefit requirements before quitting,” Cook says.
The joint federal and state program provides health coverage to nearly 80 million Americans. Many are eligible, including low-income adults, children, pregnant women, seniors, and those with disabilities.
“Many people I spoke to thought that COBRA was the only option for those after quitting and were surprised when I told them I was actually on a free health care plan through Medicaid that offered superior coverage to the Blue Cross coverage I had at my job,” Cook says.
“Medicaid is a federal low-income health care option, and its qualifications vary significantly by state,” he says. He was in New York when he quit his job. “I was enrolled automatically because I had no income. This was a boon to me as I was able to work on my startup and receive free health care coverage until I was able to pay for my own insurance.”
“Medicaid is usually free and is a great alternative to a far more expensive COBRA plan,” says Anthony Martin, a licensed insurance agent and CEO of Choice Mutual, an independent agency that specializes in “final expense life insurance,” which is designed to cover medical bills and funeral expenses.
Medicaid is available in all states. Some states have expanded their Medicaid to cover everyone with household incomes below a certain level.
“Medicaid expansion coverage is a plan that is a good option if you have lost the health insurance that comes with your job, especially if you are receiving unemployment insurance as it is assessed by your provider when deciding your coverage,” Martin says.
Short-Term Health Plans
People transitioning out of their current jobs should keep this in mind: “They will lose the employer subsidy/contributions that easily pay 50% the monthly cost,” says John Millen, managing partner of MillenGroup, an independent employee benefits advisory, communication, and enrollment firm in Richmond, VA.
“Many employees seem to forget this fact,” he says. “This means an employee can keep their group health plan for up to 18 months after leaving their employer [through COBRA]. An alternative would be for the person to purchase a short-term medical plan, which provides coverage at a much lower cost.”
Short-term health plans are designed to offer more affordable insurance to healthy people and families and are usually available for those facing changing circumstances, like job loss.
These plans are “relatively more affordable,” says Philadelphia psychologist and therapist Dena M. DiNardo, PsyD. She spent a decade working in the insurance industry at Aetna and for a wholesale brokerage.
But they don’t cover essential health benefits. “They will cover you in case of an emergency with a deductible and an out-of- pocket max of your choice,” she says.
DiNardo says that in her experience, many people had the information they needed to understand the lay of the health care land before quitting their jobs, but their situations varied, depending on their employer.
“It also depended on how well the company's HR department communicated with their employees,” DiNardo says. “COBRA was expensive, and that took some explaining on my part. Other than that, it was about calling the carriers or calling someone who could connect [them] with what the carriers had to sell.”
Affordable Care Act Plans
Since the Affordable Care Act (sometimes called “Obamacare”) became law in 2010, states have offered health insurance through their Marketplace. People with lower incomes can buy individual or household insurance coverage at reduced costs, says Adria Gross, founder of MedWise Insurance Advocacy and a New York insurance broker and consultant.
“If your income is low, your health insurance premium will be low,” she says. “If someone enrolls in a new job, they can keep the Marketplace plan, or they might decide to switch to the medical plan their new employer is offering.”
If your income rises with your new job, you may lose your premium assistance. It’s important to let the Marketplace know about any changes in your income.
Losing your health care coverage because you lost or quit your job counts as a “qualifying life event,” says Scott Eckley, president of Apollo Insurance Group. And that lets you enroll in a Marketplace plan even if you missed the open enrollment period.
“This means that they don't have to wait until an open enrollment period to find a new health plan. They can start something new right away,” Eckley says.
“To take advantage of this, they need to start their new plan within 60 days of termination or leaving. Depending on their timing when leaving, they may have more or less time to find a new plan without losing coverage. Most plans will continue to cover them until the end of the calendar month.”
For those transitioning to a job that doesn’t provide health insurance as a benefit, Millen recommends four possible options:
- Purchase a plan on HealthCare.gov (and possibly get a subsidy on the cost).
- See if you qualify for Medicaid.
- Purchase an individual plan from a local agent.
- Purchase a short-term medical plan.
What About Your Meds?
One important health issue anyone should consider before quitting: prescription medications.
"If a person is on a chronic illness prescription drug, they do not want to mess around without insurance,” Millen says. “These drugs can be very expensive without insurance. Insulin, for instance, is a life-saving drug.”
You may want to stock up if your plan allows it. (Check the plan’s rules.)
“If you have an ongoing prescription during a time of not having health insurance, I would recommend getting multiple months filled before you know you’re going to quit your job,” DiNardo says.
“Mail-order prescriptions are typically less than the cost of regular monthly fills,” she points out. “You could also speak to your doctor and find out if there’s a generic version of the drug that would be more affordable for you while you are without insurance coverage.”
Prep Before You Quit
When you’re ready to leave your job, you may be tempted to do it ASAP. But you might need to pump the brakes and figure out your health insurance first.
As for Cook, he found a solution that worked for him. But he had to do some homework to find the answers.
If you’re considering quitting, Eckley recommends reaching out to an expert and notes that depending on your age, location, number of dependents, and other things, you may qualify for government subsidies that can reduce the cost of insurance.
“If someone is thinking of quitting or has recently lost their job, then their best option is to talk to a licensed health insurance broker that works in their state,” he says. “A good broker can find a plan for them as soon as they need it to start, even if they need it to start tomorrow.”
You can also visit HealthCare.gov to see what your options are among plans in the Marketplace, for which you might qualify for a premium subsidy, as well as Medicaid.