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Job change and Obamacare: How to deal with a health insurance gap

You quit your job to take another, but you want to take a few weeks off in between jobs. Or perhaps your new employer has a waiting period until health coverage kicks in.

Since the Affordable Care Act (ACA) requires you to have health insurance, you might be wondering if the government is going to track you down and penalize you.

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Under the ACA, you can go up to three months in a row and not have to pay a penalty on your federal income taxes for being uninsured.

filling health insurance gapsWork with the calendar

If you're lucky, you'll be able to time your exit from your old job and the start of your new job so that you are not without health insurance for more than 90 days, says Andrea Kinkade, president and benefits advisor at Kaminsky & Associates Inc. in Maumee, Ohio. "You should check things out before you decide on a quit date," she advises.

Here's what you need to do: First, find out how long you will be covered under your current group health plan. Some plans end the day you leave your job; some end at the end of the month in which you leave.

Then find out from your new employer when your new health benefits will start.

"Some employers used to require you wait a year for benefits. They can't do that anymore," Kinkade says. Under Obamacare, employees must be eligible to enroll in their employer's health insurance within 90 days of their start date. It could be less.

"In California, our state legislature passed a law to say it's 60 days instead of 90," says Peter Freska, a benefits consultant with The LBL Group in Los Alamitos. "That's the maximum waiting period an employer can apply in California."

Or you may have to wait only until the first of the month following your start date to enroll.  

These differences often depend on your industry. "If you're in an industry such as white collar technical engineering jobs that really wants to attract employees, they will typically have a waiting period of 30 days or less," Kinkade says. Other fields may not need to make their jobs as attractive and can force you to wait the full 90 days.

Options for filling your health insurance gap

Once you know the end date for your current health insurance, the start date of your new insurance and how long you intend to take off in between jobs, you can decide how to fill your gap:

  • The Consolidated Omnibus Budget Reconciliation Act of 1996, known as COBRA, allows you to continue to buy coverage under your employer-provided group health plan. Employers with at least 20 employees must give you this option when you leave your job or are laid off or fired. Buying a health plan through COBRA will allow you to meet the requirements for being insured.
  • Buy an individual health plan from your state health insurance marketplace, also called an exchange, or directly from an insurer.  Anyone can do this during “open enrollment.”  Open enrollment for 2014 coverage ended March 31. Open enrollment for 2015 plans begins Nov. 15, 2014. But leaving your job is considered a "qualifying event," which makes you eligible to sign up for a health plan. Because it's a qualifying event, you have 60 days to sign up from your loss-of-coverage date.
  • You could buy a short-term health plan. These plans are available year-round, even outside open enrollment. However, they will likely not count as sufficient coverage under the ACA, and you can be rejected. You would opt for this if you have no other access to affordable coverage and you want a safety net in case of a medical crisis.

Kinkade says the ACA rules may make people think twice before they take time off between jobs if it means going without coverage for a long period. In the past, people between jobs might roll the dice and hope they didn't get sick in between jobs. Some people will still do that and risk a tax penalty.

COBRA insurance provides flexibility

The COBRA election and payment period gives many people a good way around the coverage gap, particularly those who leave one job for another, since the maximum waiting period for new hires is no more than 90 days, Kinkade says.

Kinkade says that "you have 60 days to make up your mind whether you're going to elect COBRA or not. Then you have another 45 days to pay. But it's always retroactive to your loss of coverage date."

When you get your COBRA notice from your former employer, it will tell you that you must elect coverage by a certain date.

"We always recommend if your new coverage hasn't started by that date, elect COBRA," Kinkade says. You now have 45 days from the time you elect COBRA health insurance to make your premium payments. If in those 45 days you secure other coverage either through your employer or somewhere else, and you didn't have any health care claims, you simply don't pay your premium. It means you didn't really have COBRA, but you had the option available.

More from Beth Orenstein here

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