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What if your health insurance lapses?

Cobra health insurance application
Keep in mind...
  • You Have Several Options if Your Health Insurance Lapses
  • COBRA Coverage is Available for 60 Days After Leaving a Job
  • Insurance Cancellation Due to Non-Payment of Policy Does Not Qualify you for Special Enrollment

Health insurance can be very expensive. For some the cost of medical insurance is prohibitive. Advances in healthcare are great for patients but also come with a higher price tag. As healthcare becomes more expensive so does coverage.

If health insurance is too expensive for some people out-of-pocket expenses are usually not an option. For this reason, healthcare is a necessity for most Americans.

The Affordable Care Act was created to close the gaps between those that could afford coverage and those that couldn’t, but some still struggle with affordability. Since there can be financial penalties for those without healthcare insurance many wonder what to do if their health insurance lapses?

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Ways Health Insurance is Offered – Group vs. Individual Health Insurance

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Health insurance is offered in two ways. First is through a group plan offered by employers. Group plans may also be available to those that belong to other organized groups such as unions or guild.

In a group health insurance plan, a business buys a number of policies from a health insurance company. The policies are distributed among employees or members. Both the employee and the employer pay for this coverage. The employee usually pays their portion through employee check deductions.

Group insurance is one of the most affordable health care options because the risk is shared between multiple people. Another bonus associated with group insurance is that enrollees usually qualify for insurance regardless of their past medical history.

Individual health insurance is different because it is purchased by a person directly from the insurance company.

The biggest problem with an individual plan is that it is more expensive. Additionally, millions of Americans have been denied insurance through this method because of pre-existing medical conditions. However, this may be the only option individuals who are self-employed or not employed may be able to obtain insurance.

What happens when health insurance lapses?

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If you are covered by a group plan, your health insurance can lapse if you are fired or quit. If you are covered by an individual plan, your policy may lapse if you don’t make a premium or you cancel the coverage. No matter how your health insurance lapses, it’s important to understand what happens when this occurs.

As soon as your health insurance lapses, you will be responsible for paying all out-of-pocket expenses. You may also have trouble getting coverage in the future. If you have significant health problems such as heart disease, diabetes, etc., you could face higher premiums or have waiting periods applied to your coverage when an insurance company accepts you.

What’s COBRA?

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One of your first, and probably best, options is COBRA. The consolidated Omnibus Budget Reconciliation Act (COBRA) allows individuals to leave a job and continue to carry health insurance, but on a temporary basis. COBRA prevents individuals from suffering health consequences as a result of their lapse in health coverage.

The only problem with COBRA is that is costs much more than an insured paid for the same policy when they were employed. The increase in cost is because the individual assumes all the financial responsibility for the policy instead of the cost being shared between the employer and insured, the insured pays the entire premium.

Even though the premiums are expensive, some individuals find the coverage worthwhile until they can find a less expensive alternative.

In fact, one of the best times to apply for COBRA coverage is when you are going to have a gap in coverage. For instance, if you are leaving one job for another, and have a waiting period before the next policy covers you, a COBRA policy may be your best solution.

Enrolling in COBRA as soon as you leave a job is a good idea because it prevents you from being denied coverage or having long wait periods issued due to pre-existing conditions.

Under law, individuals have 60 days to determine if they want to apply for COBRA coverage and then 45 days to pay for it. If your insurance does lapse, it’s important to know that every state handles lapses in health insurance differently.

For this reason, it’s important to determine what the laws are in your state regarding COBRA and health insurance lapse before choosing the right program for you. Leaving a job is also a “qualifying event” if an individual is interested in purchasing insurance through a state exchange instead of COBRA.

Changes After the Affordable Care Act

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The Affordable Care Act (ACA) reformed health insurance and made changes that specifically apply to lapsed policies. Under the ACA, insurance companies are limited in regards to denying individuals with pre-existing conditions.

What this means is even people whose insurance has lapse should be able to buy insurance through a state-funded health insurance exchange. The ability to buy insurance through an exchange removes many stresses associated with unemployment and health insurance loss.

If COBRA premiums are too much for your budget, or you want to look for more economical options, a state-funded health care policy may be the best solutions. Even though those with healthcare lapses have more options now than before COBRA, it’s still best to avoid a lapse in health insurance whenever possible.

What to do if a Healthcare Marketplace Policy Lapses

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It’s possible for your health care policy issued by a state exchange to lapse. Usually, this happens due to non-payment of premiums. If this happens, you still have ways to gain coverage, but you also have several restrictions as well. For example, if your policy lapses due to non-payment, you will not be able to re-apply until the next enrollment period.

Lapses due to non-payment will not qualify you for special enrollment periods. However, you may be able to do the following to have your coverage reinstated:

  • Contact insurance company and ask for reinstatement
  • Check to see if you qualify for any life events that can trigger special enrollment
  • Check eligibility for state Medicaid payments
  • Apply for short-term health insurance
  • Seek coverage from an employer

Employers Have 90 Days to Offer Health Insurance Coverage

Before the ACA, employers could offer medical benefits to employees at their discretion. Some employers offered benefits immediately and others had a pre-determined waiting period such as 30, 60, or 90 days.

Under the Affordable Care Act law, employers must offer coverage to employees after 90 days.

However, it could be much sooner. For example, California state law requires employers to offer coverage to employees after only 60 days.

Avoiding Fees for Not Having Health Insurance

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It’s important to remember you could face financial penalties for not having health insurance. If you have exhausted all your options to obtain affordable coverage, you should look into ways to avoid the fee. It’s best to contact a tax professional for help with this matter.

If you feel your insurance was canceled for the wrong reason, you have rights. Under the ACA, individuals have at least 30 days to reinstate a policy that was canceled due to non-payment. However, it is the insured individual’s responsibility to call and ask for the reinstatement from the insurance company.

If your policy was canceled for any other reason, you should seek legal advice regarding your next steps. It’s worth noting that the ACA allows for a lapse in coverage up to 90 days without penalty.

Why are there so many rules regarding health insurance lapses?

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After reading all the information above, you are probably wondering why there are so many rules regarding health insurance lapses. The ACA was created to make insurance more affordable.

The rules regarding lapses are in place to deter people from waiting until they need coverage to apply for it. However, if your coverage lapses accidentally, the rules regarding what is available when your insurance has lapsed seem counter-productive.

Knowing all your options when it comes to preventing lapses in healthcare coverage can help you make the best choices for yourself and any dependents.

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