Quitting my job has turned out to be a great decision. Although I really enjoyed working for my last company, I was ready for a change and once we found out that my fiancee had gotten into med school in Irvine, we started planning for our move. Taking time off from work has allowed me to really focus on all of my online entrepreneurial activities and although I’m making a lot less than I was at my day job, I’m also working a lot less.
I’ve had a great couple months off so far but that will all change soon for the better since I got a job offer from one of the top aerospace companies the other day. Even though I’ll be back to working 9-5 in a couple months, I still have another month before I start and my total time off from work will end up being around 2-3 months. There was a lot of planning that went into this day job hiatus and I didn’t realize how much work it was to actually leave your job until now. I’ve already talked about the best day to quit your job, but one of the huge things that I almost forgot to consider was the cost of health insurance when you have no job.
I’m 26, so I’m just over Obamacare’s cutoff to be covered by my parent’s health plan unfortunately(otherwise this is the best option). And since I quit on a Tuesday and my company extends health insurance until the end of the pay period I got about 12 days of free health insurance. After that though, it was up to me to start paying the full cost of my health insurance.
COBRA Explained
COBRA is a law passed in 1985 that essentially gives employees the right to continue health insurance coverage once they separate from their employer. Often when you’re laid off, COBRA will be offered and paid for by the employer, but when you quit or you’re fired, it’s your responsibility to pay the full cost of insurance. I had an HSA/HDHP with my last company so I thought my monthly premium would be pretty low. I was shocked to find out that I would have to pay $366.90 to continue my coverage with Aetna under COBRA. When I was employed, I only had to pay $51 per month so that means that the company was covering $315.90 of my monthly plan. That is a complete rip-off for a high deductible plan!
Related Article: What’s the Best Day of the Week to Quit Your Job?
The interesting thing about COBRA though is that they give you 60 days to accept or reject your old insurance plan. So you can actually wait 60 days before making a decision on whether you want to keep COBRA or not. If you get into a serious accident during that time frame, you can instate COBRA(even after you’re injured) and you’re retro-actively covered although you have to pay for the prior 2 months of coverage. It’s probably cheaper though to just pay for any minor medical expenses incurred during the 60 day window out of pocket since paying anything under $733.80($366.90 x 2) will save you more than if you were to re-instate COBRA insurance. If you incur expenses over $733.80, then you would re-instate COBRA.
My Plan Going Forward
Since my date of termination(for medical coverage) was at the end of July I have until 10/7/13 to instate COBRA or not(I guess there is a 7 day grace period on top of the 2 months). I plan on waiting until the end of September and I’m going to purchase a HealthNet PPO plan through eHealthInsurance for only $94 a month(that plan is actually better than my old employer’s plan).
It’s only $40 for the first 2 visits to a primary care and specialist doctor, and the deductible is $3,500 with a max out of pocket of $6,500. My old plan made pay for everything, no co-pays or anything until I hit the deductible of $3,500. Obviously my company is doing something wrong if they have over a hundred thousand employees and they can’t negotiate a price better than 4x what I found in about 5 minutes of online searching.
Final Thoughts
If you go about this strategy, make sure that you don’t wait until the day your COBRA runs out(10/7 in my case) to sign up for health insurance through a different provider. There is sometimes a 1-2 week processing period so you want to be sure to sign up a couple weeks before and set your start date a couple days before your COBRA insurance expires.
I plan on starting my new job in mid-October so I really only need a few weeks of health insurance but I definitely want to be covered during those few weeks in-between my COBRA expiring and starting my new job. It seems like people always tend to get hurt/have accidents when they’re uninsured and at $50 for a couple weeks I think it’s a worthwhile investment.
Readers, have you ever signed up for COBRA insurance once you left a job? What do you think of my loophole? Good idea? Bad idea?
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I remember when I started at my current company, health insurance kicked in on the 1st of the month on/after you started. So if you started October 1st, you would get health insurance in October, but if you started any other day, you wouldn’t until November 1st. So you might need that private insurance for the whole month of October! It was kind of annoying too because you could only start on a Monday, so I was pretty fortunate that I did start on the 1st of a month.
Congrats on the new job!
Oh weird I’ve never heard of that! Was it a smaller company? I’m still negotiating my pay/start date for my new job but I’ll probably be going back to work in a month or two. Thanks for the heads up!
That’s what I did when I left my job a few years back. I took a few months off for myself and was considering not paying for COBRA but did end up activating it so as to have no gap in coverage. I was considering a job offer with a smaller firm and a less than cadillac health care coverage so didn’t want to give any reason to have a claim denied in the future.
The only thing is (at least this was true in 2008), if you activate COBRA at the end of your eligibility window you need to pay for it from the start of the window. So you’d have to pay for the previous two months of insurance even if you didn’t use it at all during that time.
I’m not sure what a gap in coverage would have to do with a claim being denied in the future since your new employer/health insurance company gives you insurance once you start there(as opposed to applying for health insurance on your own and getting denied). I’ll be honest though, I’m not an expert on this subject and insurance companies tend to be pretty skeevy when it comes to stuff like this.
You’re right, if I activated COBRA at the end of the 2 month period I would have to pay for the whole thing. So as long as any med bills I would get are less than $700, it pays not to have COBRA but if they go over then I would activate it.
I’m not 100% sure how much of this will still stand when ACA is fully enacted, but looks like 63 days in the magic amount of time. Any gap > 63 days is termed a “significant gap in creditable coverage” and that’s the point at which they can start denying coverage or claims.
http://www.familiesusa.org/issues/private-insurance/legal-rights/hipaa-definitions.html
Yes I read that too but couldn’t find it on a .gov source. I think as long as the gap is less than 63 days though you should be good. You may be able to still get covered but I wouldn’t bet on it. Insurance companies have a tendency of using any loophole necessary to screw you over.
That’s a pretty good option to be able to back pay for COBRA over the 60-day acceptance period, if necessary. Kudos to you for making sure you are always covered.
Last month, our company sent out a notice of a Voluntary Resignation Opportunity (VRO) for all employees in some of the larger divisions. Two engineers and our Sales took the offer. Kind of a bad sign for me and my wife, since we are both Senior Mechanical Engineers in the Vibrations Group. They may decide to shove more people out the door. And middle management engineers may be high on the chopping block.
Unfortunately, we would have to go with Cobra right away, because I have a pre-existing condition that requires weekly visits at the hospital. We currently pay something like $245/month for family coverage with Kaiser. It is not a high-deductible plan. Medications are paid for, and is just $15 per visit, and is often waived for me.
Ah that’s too bad, well as a fellow engineer I know lots of companies are hiring right now. Might not be the most exciting idea to switch jobs at this point in your career but know that you are in demand 🙂
My experience with the private insurance is that there is some window of time required for underwriting. i.e. if you apply after the 15th of September it may go into effect November 1st. In my case I opted for a catastrophic type coverage to cover the gap.
Oh really, that long? I called in and spoke to the insurance company and they told me it’s never more than two weeks since they start new policies on the 1st and 15th of each month so I’ll probably call in 2 weeks ahead of time.
I had COBRA coverage in 2007. As I recall it was quite expensive. I’m glad to see that their are ways to avoid the high price tag for peace of mind.
Yea it’s over 3 times higher in my case, but I’m young and healthy. The average worker at my old employer was older so that probably has something to do with it.