Tag Archives: stop-loss

Health Insurance: Part 3 – COBRA Coverage

This is Part 3 of a series on health insurance. Part 1 discussed deductibles. That post discusses  how they affect your plan and costs. Part 2 discussed stop-loss provisions and co-insurance.

The Consolidated Omnibus Budget Reconciliation Act of 1985 or COBRA, is a set of provisions that require some employers (those with 20 or more employees) to continue health insurance coverage for employees after termination of employment.

Termination of Employment

Under COBRA, the employer must offer continued health insurance coverage for 18 months from the date of termination or demotion to part-time.¬† If the employee was fired due to “gross misconduct”, COBRA benefits do not have to be offered. COBRA coverage can be terminated before the 18 month period if any of the following occur:

  • the employer terminates the health plan for all employees
  • the employee neglects to pay the required premium
  • the employee becomes covered under a new medical plan (however, if pre-existing conditions are excluded on the new plan, the employee must be allowed to continue COBRA)

The employer is allowed to require the employee to pay for some of the costs of COBRA coverage. However, they are not allowed to charge more than 102% of the cost of the insurance.

Disability

If termination is due to disability, coverage must be allowed to be continued for up to 29 months. All of the requirements set above are still applicable.

Other Options

There are several other events where an employer must offer 36 months of continued coverage to an employee or their beneficiaries. These events include:

  • death of employee
  • divorce or legal separation of the employee
  • employee’s entitlement to Medicare
  • bankruptcy

Recommendations

COBRA can be a very beneficial for many individuals, especially in these tough times. If you lose your job, check with your previous company about COBRA coverage. The coverage may be more expensive than you are accustomed to, but may be considerably less than if you were to purchase individual coverage. It also allows you to avoid the possibility of having pre-existing conditions placed on your new policy. For example, if you were recently treated for cancer, your new policy may not cover you for those related expenses. COBRA coverage may help ensure that those expenses are covered for a period of time.

Has anyone had a specific COBRA experience they would like to share?

Health Insurance: Part 2 – Co-insurance and Stop-loss Provisions

It’s been quite awhile since I wrote the post Health Insurance: Part 1 – Deductibles. In that post I discussed the general idea of deductibles and how they work. In this post, I will be discussing co-insurance and stop-loss provisions and what they mean to you and your wallet.

Once your deductible has been met, many health insurance companies will pay for all of your medical expenses. On the other hand, many companies will pay for medical costs on a co-insurance basis. Many co-insurance provisions are stated in a percentage format such as 80/20, 70/30, etc. The first number is what the insurance company will pay after the deductible and the second number is what you will be responsible for. You will continue to pay that percentage (after the deductible) until you reach a stop-loss provision or out-of-pocket maximum.

The stop-loss provision is the point where the insurance company will begin to pay 100% of a claim. Once your out-of-pocket expenses reach that limit, the insurance company will pay the rest. Without a stop-loss provision, you could be responsible for the co-insurance of an indefinite amount. For example, if you have medical bills of $500,000, your co-insurance clause is 80/20 and you do not have a stop-loss provision, you would be responsible for $100,000 of that particular bill. Make sure that your health insurance has a stop-loss provision for this reason! The higher the stop-loss, the lower the premium.

Let’s look at a comprehensive example for clarification:

Assume that John has an insurance policy with a $1,000 deductible, 80/20 co-insurance and a $5,000 stop-loss provision. Let’s also assume he has a hospital bill for $2,000. How much is he responsible for?

He is responsible for the first $1,000 of the bill due to the deductible. He is then responsible for 20% of the remaining $1,000 bill or $200. His total out-of-pocket expenses for this bill are $1,200.

Now let’s assume he has another bill for $25,000 (due to a surgery) in the same year. Since he has already paid his deductible, he will go straight to the co-insurance. He will be responsible for 20% of the bill or $5,000. However, he has a stop-loss provision of $5,000. Since he already paid $1,200 from a previous bill, he will only be responsible for $3,800 of the surgery bill. This is due to having met his $5,000 stop-loss. The insurance company will now pay any additional bills that come in during the same calendar year. Keep in mind that these provisions and deductibles are on a yearly basis and reset each year. So in this example, if John has the same bills next year, he will have to pay the same amounts again.