Job Switch: Insurance Coverage?

When you change jobs, you will likely lose your employer-sponsored health insurance coverage. This can be a stressful time, as you will want to ensure you have continued health insurance coverage during the transition period. There are several options to consider to avoid a lapse in coverage, including using COBRA, getting a short-term policy, or enrolling in a new plan outside of the open enrollment period.

Gaps in coverage

When you change jobs, there is often a gap between the end of your old insurance coverage and the start of your new coverage. This can leave you vulnerable to unexpected medical bills. It is important to understand what leads to gaps in coverage and to be aware of the options available to you to bridge the gap.

There are several circumstances that could result in a coverage gap in health insurance:

• Leaving one job for another
• Taking a break from full-time employment
• Changing jobs multiple times in a short period
• Losing eligibility for employer-sponsored health insurance due to age or other factors

Consequences of the coverage gap

The consequences of not having health insurance during the coverage gap vary depending on the individual’s situation. For those with pre-existing conditions, gaps in coverage may mean that their condition won't be covered when they acquire insurance again. Additionally, hospital bills can quickly add up without any form of health insurance, making it difficult to maintain financial stability.

If someone becomes sick or injured while uninsured during this gap period, they may be forced into bankruptcy just trying to keep up with medical bills.

There are several options to bridge the gap between job changes and maintain health insurance coverage:

• Short-term health insurance plans: These plans provide basic coverage at an affordable rate and can last anywhere from one month to six months. However, many of these plans do not cover pre-existing conditions or certain benefits, such as prescription drugs or mental health services.
• COBRA continuation coverage: The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives employees who leave their job the right to keep their current health insurance plan for up to 18 months. However, employees will be responsible for paying the full premium themselves.
• Marketplace plans: Individuals can shop in state or federal healthcare marketplaces such as Healthcare.gov and compare different plans based on cost and benefit levels. Many states offer subsidies on marketplace plans based on income level or other factors.
• Medicaid: Depending on your income and location, you may be eligible for Medicaid, which provides health insurance to low-income individuals and families.
• Spouse's health plan: Getting added to a spouse's plan is usually the easiest option if it is available. However, adding a spouse to a health plan may raise premiums significantly.

It is important to carefully review your employment contract, HR documents, or speak with your employer's HR department to understand the specific start date and any waiting periods that may apply for your new coverage.

COBRA coverage

When you change jobs, there may be a waiting period before you qualify for health insurance, so it's important to consider your options to ensure you don't have a gap in coverage. One option is to use COBRA, or the Consolidated Omnibus Budget Reconciliation Act, which allows you to temporarily maintain your employer-provided health insurance.

COBRA is a federal law that provides for the continuation of medical coverage in specific circumstances, such as voluntary or involuntary job loss, reduction in hours worked, transition between jobs, death, divorce, and other life events. It applies to most private sector businesses with 20 or more employees and requires an employer's group health insurance plan to continue after qualifying life events.

To be eligible for COBRA, three basic requirements must be met: your group health plan must be covered by COBRA, a qualifying event must occur, and you must be a qualified beneficiary for that event. Qualifying events include termination or a reduction of a covered employee's hours, divorce or legal separation from a covered employee, death of a covered employee, Medicare eligibility for a covered employee, and loss of a child's or dependent's health insurance coverage under the plan.

If you're eligible for COBRA, you'll have 60 days to enrol once your employer-sponsored benefits end. You will receive a notice from your employer with information about deadlines for enrollment. While COBRA is temporary, you can generally stay on it for 18 to 36 months, providing flexibility to find other health insurance options. However, cost is an important consideration as you may be required to pay the entire group rate premium out of pocket, plus a 2% administrative fee.

Temporary insurance plans

Temporary health insurance plans are a great option for those transitioning between jobs. These plans can help protect you from potentially devastating health care bills if you've lost your job or quit your job. Here are some things to keep in mind about temporary health insurance plans:

• Duration of Coverage: Temporary health insurance plans typically provide coverage for a specified term, ranging from one month to 364 days, with the option to renew for up to three years in some cases. Some states may have different limits, such as California, which banned the sale of short-term health insurance plans after September 1, 2018.
• Cost: Temporary health insurance plans are generally less expensive than traditional insurance policies. However, they may not provide the same level of coverage and often have high out-of-pocket costs.
• Eligibility: To be eligible for a temporary health insurance plan, you usually need to meet certain health requirements. These plans are often designed for individuals who are in good health and only need coverage for a short period.
• Coverage Limitations: Temporary health insurance plans may not cover pre-existing conditions, preventative care, maternity care, prescription drugs, or mental health services. It's important to carefully review the exclusions and limitations of the plan before enrolling.
• Enrollment Period: You can typically enrol in a temporary health insurance plan at any time during the year, and coverage can start as early as midnight following enrollment. However, it's important to note that there may be a waiting period for employer-provided insurance, which can last up to 90 days.
• Cancellation Policy: Most temporary health insurance plans offer flexibility, allowing you to cancel at any time without penalty. This is especially useful if you find new employment with health benefits or if your financial situation changes.
• Comparison to COBRA: COBRA is another option for maintaining health insurance coverage after leaving a job. However, COBRA tends to be more expensive as you have to pay the full premium yourself. Temporary health insurance plans can be a more affordable alternative, especially if you don't qualify for tax credits or subsidies.
• Special Enrollment Period: Losing job-based health insurance is considered a qualifying life event, which opens a special enrollment period. This allows you to buy your own individual health insurance plan outside of the open enrollment period. The special enrollment period typically lasts for up to 60 days after losing your previous coverage.
• Alternative Options: In addition to temporary health insurance plans, you may also consider other options such as enrolling in a spouse's health plan (if available), exploring individual insurance or ACA exchanges, or applying for government-sponsored programs like Medicaid or CHIP.

Employer-sponsored coverage

When you leave a job, you will likely lose your employer-sponsored health insurance coverage. However, there are several options to ensure continued coverage during the transition period between jobs. Here are some things to consider regarding employer-sponsored coverage when changing jobs:

Transition to new job-based coverage

If you transition quickly to a new job, you may not have a large coverage gap to worry about. If you start your new position within a month of leaving your old job, you will likely avoid any serious issues with health insurance coverage.

Stay covered by your old plan

Your previous employer may sponsor a policy that allows you to stay covered for a short time after leaving your job. Check with your employer to see if this is an option.

COBRA

The Continuation of Health Coverage Act, or COBRA, allows you to continue receiving coverage under your previous employer's plan for a set period, typically up to 18 months. You have 60 days from your last day of work to apply for COBRA, and you must pay the full premium, which can be significantly more expensive than what you paid while employed.

Prolonged coverage under your current plan

If you have anticipated care needs, you may qualify for special or prolonged coverage under your current plan. Discuss your health options with your employer before you leave your job to explore this possibility.

Medicaid

If your income is low, you may be eligible for Medicaid, a federal and state-run program that provides no-cost health insurance. The eligibility requirements vary by state.

Health Savings Account (HSA)

Depending on your health needs and associated expenses, you may qualify for a Health Savings Account, which is a special bank account designated for medical expenses.

Enroll in a new plan independently

Losing your job and its associated employer-sponsored insurance is often considered a qualifying life event, making you eligible to enroll in a new health insurance plan outside of the open enrollment period. You can explore options in the health insurance marketplace or consult a health insurance broker to find a plan that suits your needs.

Timing of new employer-sponsored coverage

When starting a new job, it is important to understand when your health insurance coverage will begin. While health insurance often starts on the first day of employment, there may be a waiting period of up to 90 days before coverage kicks in. This timing varies depending on the employer, so be sure to review your employment contract and speak with the HR department to understand the specific start date and any applicable waiting periods.

Retirement plans

When you change jobs, you'll likely have to make some changes to your retirement plans. Here are some options for what to do with your retirement savings when you switch jobs:

Keep your savings with your previous employer's plan

If your previous employer allows it, you can leave your retirement savings in their plan. This option lets your savings continue to grow tax-deferred, and you won't have to pay taxes until you start making withdrawals. You'll retain the right to roll over or withdraw funds at any point in the future. However, you usually won't be able to make additional contributions to this plan, and the plan administrator may charge additional fees for bookkeeping, administration, and legal fees. You'll also have fewer withdrawal options with this approach, and you may have to withdraw the full balance even if you don't need the entire amount.

Roll over your savings into your new employer's plan

You can roll over your retirement savings into your new employer's plan if they accept rollovers. This option lets you manage all your savings in one place, and your savings will continue to grow in the new plan. Make sure you review the new plan's costs, features, and investment choices before rolling over your savings. Keep in mind that you'll need to liquidate your current investments and reinvest them in the new plan's offerings, which will take time and research. Also, note that your money will be subject to the new plan's withdrawal rules.

Roll over your savings into a traditional or Roth IRA

Rolling over your retirement savings into a traditional or Roth IRA gives you more control over your investments and potentially a wider range of investment options. IRAs are owned directly by you, so you won't have to worry about making changes to your account if you change jobs again. However, once you roll your funds into an IRA, they may no longer be eligible for a future rollover into a 401(k) plan, and required minimum distributions (RMDs) generally apply at age 73, regardless of employment status. With a Roth IRA, withdrawals are tax-free in retirement if you're over 59 1/2 and have held the account for at least five years. But converting to a Roth IRA means paying taxes on your existing 401(k) funds, and withdrawals before 59 1/2 may be subject to income tax and an early withdrawal penalty.

Cash out your savings

Cashing out your retirement savings is generally not recommended, as it can result in taxes and early withdrawal penalties. If you cash out your 401(k) before 59 1/2, you'll typically have to pay a 10% penalty and income tax on the amount you withdraw. This option can also cause you to lose out on years of tax-free growth and compound interest from your investments. However, if you are in dire need of funds and have no other options, cashing out may be necessary. In that case, consider a personal loan or 0% APR credit card instead.

Frequently asked questions