1. Get fired from your job.
2. Have your former employer fail to notify you of your COBRA or state continuation rights (thus you become uninsured).
3. Come down with a terrible illness or injury and incur thousands of dollars in uninsured medical bills.
4. Sue your former employer for failing to notify you of your right to continue on the company health plan.
5. Take stock ownership of your former employer because they don’t have the cash to pay off your Mac-Daddy judgment!!!

Yep, it’s that easy. You just have to work for a company that doesn’t take its fiduciary duties seriously. President Obama just signed into law the American Recovery and Reinvestment Act (ARRA) which mandates that taxpayers cover 65% of COBRA premiums for involuntarily terminated individuals.

There are new Department of Labor notices that must be mailed to everyone who lost coverage since September 1, 2008. The deadline to send these notices is April 18, 2009. Let me know if your company might need some help (or not if you aspire to own them one day)…

Responsibility combined with inaction equals liability.

Basically, the law mandates that certain employees who were involuntarily terminated between September 1, 2008 (yes, 2008) and December 31, 2009 be made to pay only 35% of their state continuation premiums starting March 1, 2009. The special open enrollment provision in the law applies only to COBRA groups, not those subject to state continuation.

So, if you have less than 20 employees and have terminated or will terminate someone do you know how to properly offer them continued health coverage? If not, let me know and we will give you a hand.

The answer has been 18 to 36 months depending on the qualifying event. Now, however, under President Obama’s plan the answer could be when the participant becomes eligible for Medicare (age 65 to 67)!

As part of the stimulus bill, Congress (H.R. 598 and S. 29) is considering proposals that would force taxpayers to subsidize COBRA premiums for those who are out-of-work. A couple of the highlights:

Employees who are at least age 55 or had 10 or more years of service would be allowed to stay on the group plan under COBRA beyond the typical 18 month deadline. This coverage could continue until any other termination reason occurs namely Medicare entitlement or failure to pay COBRA premiums.

The new law will require taxpayers to provide premium assistance (65 percent of the COBRA premium) for up to 12 months for those who elected COBRA from September 1, 2008, through December 31, 2009. It would apply to employment terminations for reasons other than gross misconduct. Employers will go through an awkward system of paying the premium to the insurer and then getting a credit on payroll taxes.

Sadly, many employees don’t appreciate how much their employer pays for health insurance on their behalf until they get that first COBRA premium bill. Yes, insurance is expensive, but then so is that unexpected $50,000 surgery!

Eventually the Federal stimulus bill funds will dry up and politicians will be forced to take away the benefit or, more likely, make employers or the states subsidize COBRA premiums.

I predict that these changes proposed by Obama will drive up the cost of private health insurance and force more people onto taxpayer subsidized plans (COBRA, Medicaid, SCHIP) – all of which is a stated goal of those promoting nationalized health care.

Well, we did ask for change…

Have some fun and give your broker the following quiz. Judge the timeliness and accuracy of his or her response.

1. An employer just hired an employee whose wife is pregnant. For the twelve months prior to being hired, the employee and spouse were uninsured. Will the pregnancy be considered a pre-existing condition under the group’s medical plan?
2. An employer with more than 20 full-time employees has a medical policy subject to the laws of Georgia. A 61 year old employee terminates employment because of a health condition. For how long must the employer allow him to stay on the group plan?
3. A fully insured welfare benefit plan had over 100 participants at the beginning of the plan year. What are the plan sponsor’s ERISA reporting and disclosure requirements? Is compliance the obligation of the broker or employer?
4. In the preceding calendar year, an employer had sixteen full-time employees and eight part-time employees. Only twelve of the full-time employees are covered by medical insurance. None of the part-timers are covered. For the current calendar year is this group subject to COBRA?
5. An employer with a fully insured medical policy written in Georgia hires an employee with a history of cancer. This individual was uninsured for 70 days prior to joining the employer. When is the earliest this employee can incur a cancer related claim and have it covered? Does the answer change if the plan is not subject to Georgia law?
6. If Joe terminates employment April 16th and coverage ends April 30th, by what date must he have elected COBRA? If he elects COBRA on May 22nd, by what date must all back premiums be paid?
7. An employee returns to his previous employer after having been deployed in the U.S. military. Can the employer make the employee satisfy the health plan’s 90 day waiting period?
8. A Georgia corporation which is subject to COBRA has several employees in Texas. What is the maximum duration of continuation coverage for Georgia employees? Texas employees?

I hope this helps you evaluate the quality of your benefits broker. Shoot me an e-mail (amcrae@angusmcrae.com) or give me a ring (770-300-0001) if you would like the answers…

If you are going to take The Leap please do some homework on the front end. Understand that there are two major types of health insurance: group (employer sponsored plans) and individual.

Group coverage has a number of advantages: (i) insurers are required by law to accept a small employer group no matter what pre-existing conditions exist, (ii) an insurer must credit prior insurance coverage against its pre-existing condition provision, and (iii) if a plan participant loses coverage (termination of employment, for example) he can take the group coverage with him for a period of time (COBRA and/or “state continuation” coverage).

In order to be eligible for group insurance you must be an active employee or on COBRA/state continuation with your former employer. Individual policies are an alternative for some people, but are not a universal solution. An “individual conversion” policy is an unattractive solution if it is available at all. Here are some options to consider if you decide to take The Leap:

1. The group option. If you have at least two employees you can establish a group plan under your new start-up. As an alternative, you could take your former employer’s COBRA coverage or state continuation coverage until you can get up to two employees and start a group plan of your own. COBRA generally may last up to 18 months. The maximum period for state continuation varies state to state; here in Georgia it lasts only three months.

2. The individual option. You will need to think about applying for an individual policy if (i) your new venture does not have two employees and/or you are going to exceed the maximum duration of COBRA or state continuation, or (ii) you don’t have any significant health conditions and your former employer’s COBRA/state continuation coverage is relatively expensive.

3. The “individual conversion” option. Things are not good if you are at this point – your COBRA/state continuation has expired and you have been declined for an individual policy. Some group policies may allow you to “convert” the group coverage to an individual policy. Be forewarned, these policies are generally a state-mandated benefit designed as a safety net for uninsurable individuals. Therefore, coverage is minimal and premiums are high. Before jumping ship, review your current insurance policy to verify that individual conversion is even available.

4. The “pull-the-plug” option. Hopefully not, but you may get to the point where the lack of available benefits forces you back into corporate world.

So should you be like the gentleman in the Consumer Reports article who learns the realities of health insurance only after having left a good job with benefits? Obviously not! I hope this helps as you move forward with your plans…