How to Choose Your Health Benefits After a Layoff

Do you know what your job-based health insurance costs? If you get laid off, you'll find out—and the price tag is shocking.

When you part ways with an employer who has 20 or more employees, you're given the option of continuing your health coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA), a 1986 federal law that requires employers offer at least 18 months of coverage to employees and their dependents. What's the catch? You have to pay the entirety of your monthly premium.

Let's say $300 comes out of your paycheck each month for health insurance premium. Then, imagine your employer pays the other 75 percent of your premium. Altogether, your premium is $1,200. That's the cost you'd pay with COBRA.

As high as that price is, your employer, who buys insurance plans in bulk, is likely getting a discounted rate. If you have a really good job-based plan, your COBRA coverage will likely be a little bit cheaper than purchasing a comparable plan elsewhere.

Should You Go with COBRA?

COBRA may not be right for you. Primarily, your choice will depend on the degree to which you rely on your current plan and your ability to pay for it on your own. Here's a handy breakdown of the pros and cons of going with COBRA:

Pros:

You will not risk interrupting your healthcare coverage. It could take as long as 44 days to kick in, but you'll be paid back for any medical bills incurred in the interim.
Most likely, you can continue seeing the doctors and healthcare providers you've been seeing all along.
Your premiums may be slightly cheaper than comparable plans on the individual market.

Cons:

COBRA isn't cheap. You may not need a plan as comprehensive as your employer's plan. In that case, it may be more prudent to purchase a cheaper plan elsewhere.
Your coverage remains at the whim of your employer. If they alter or discontinue the company's plans, you're not protected.
Coverage is only guaranteed for 18 months. You'll need to look for a new source of insurance sooner or later.

Thankfully, COBRA isn't the only game in town. A layoff triggers what's called a special enrollment period, qualifying you for enrollment in other health insurance plans over the first 60 days after a layoff and, if you get advanced warning, 60 days prior to the layoff date. Don't let this window close without exploring your options.

Other Insurance Options to Consider

COBRA isn't the only option for health insurance coverage after a layoff. Here are some alternatives to consider.

1. Your spouse's coverage.If you're married, this is likely your best, most cost-effective option. But don't dawdle: Most plans require you to apply within 30 days of getting laid off.
2. Your state's insurance marketplace. "In today's world, the best place probably is to go out to the government healthcare exchange," Brook Anderson, a financial advisor at Kaizen Financial Advisors, says. On healthcare.gov, he continues, "what you'll see is what kind of looks like buying an airline ticket on Expedia." You enter the parameters of what you're looking for.If you use your coverage often, you may want to go with a high-premium plan that covers a wide range of services. If you seldom use your insurance, however, there are affordable plans with very high deductibles (as in, you might be spending as much as $12,000 out-of-pocket before your coverage fully kicks in) and a narrow range of services covered.Additionally, if you fall below certain income lines, you may qualify for marketplace subsidies, which will cover some, if not all, of your monthly premium costs. The subsidies don't exist for those who buy coverage outside of the marketplace.
3. Short-term health insurance coverage. If you live a healthy lifestyle and rarely, if ever, go to the doctor, you may want to look into a short-term policy, also known as gap insurance or temporary insurance. These plans have high deductibles, offer limited services and rarely cover stuff like mental health and prescription drugs. However, they're far cheaper than your employer-sponsored plan.
4. Flexible spending account. When you lose your job, you also lose access to your flexible spending account (FSA). Take advantage of it while you can. If you planned to contribute $1,200 to your FSA this year, yet only $100 has been taken out of your paycheck by the time you're laid off, you can still spend the entire $1,200. Move fast, though: you'll have to do so before you're unemployed.
5. Employer Open Enrollment Period. If the COBRA plan seems too expensive, you can take advantage of your employer's open enrollment period. If available, enroll in a cheaper plan, such as Preferred Providers Organization or Health Maintenance Organization. If you expect a layoff is just around the curve, you could even make the switch before you get the pink slip.
6. Medicaid. Depending on your income level and the laws of your state, you may be eligible for Medicaid, the government health insurance plan for low-income individuals.

Whichever Plan You Choose, Take Care of Yourself

Whether you're using your savings to pay for the best plan available in the marketplace or you plan on going without insurance, it's important to take care of yourself.

Unemployment increases the likelihood of a heart attack or stroke and leads to a 15 to 20 percent increase in the probability of dying in the 20 years following the loss.

"The likelihood of you getting ill or having an accident while you're laid off if you aren't taking care of your mental health and exercising increases dramatically," mental health counselor David Goodenough says. "The biggest thing is prevention."