Workers Have Few Options When Employer Health Insurance Plan Disappears

Corporate Changes Are Trouble For Employer Health Insurance Plan

Other types of corporate changes can also spell trouble for employee health insurance plans.

For example, if a company is reorganizing under Chapter 11 of the bankruptcy code and plans to continue operating, the healthcare plan may change but often continues to operate, says Tom Billet, a senior consultant at human resources consultant Towers Watson.

But if a company is liquidating under Chapter 7, laid-off workers may be in a tougher spot. COBRA is not helpful because there’s no longer a company health insurance plan to buy.

If that happens, they may be eligible for guaranteed coverage on the individual market, as Hunt was.

In situations where one company buys another, “there’s a whole spectrum of possibilities,” says Bruce Richards, chief healthcare actuary for human resources consultant Mercer.

The acquiring company may continue the same health coverage that employees at the acquired company had, at least for a time, or it may merge the new employees into the acquiring company’s health insurance plans.

“It could be better or worse than their current employer’s plan,” Richards says.

Although active employees face uncertainty when a company changes hands or goes through bankruptcy, retiree health coverage may be particularly vulnerable, experts say.

Retirees who are 65 or older can rely on Medicare and a Medicare supplemental plan to fill in coverage previously provided by their retiree medical plan.

Retirees younger than 65 are not so lucky.

“Early retirees are in the worst spot possible if there’s a bankruptcy,” Richards says. Chances are, “their benefit plan will be terminated.”

If a company is sold, retiree benefits may or may not change, say experts.

“In general, a company continues the retiree coverage for those that are in the plan,” Richards says. However, “that doesn’t mean that at some point they can’t terminate it.”

Workers and early retirees alike will have more options in 2014 when the state-based health insurance exchanges begin selling comprehensive coverage to people who don’t have access to a health insurance plan elsewhere.

Those with incomes up to 400% of the federal poverty level may be eligible for premium tax credits to help defray the cost.

At that point, even if workers are eligible to continue on their employer’s plan under COBRA, they may not want to, experts say. Under COBRA, people have to pay 100% of the premium, plus a 2% administrative fee, in many cases.

Buying coverage instead on the exchanges would probably be a better deal.

“You’re unemployed; your income just dropped,” says Paul Fronstin, director of the health research and education program at the Employee Benefit Research Institute. “If you go onto the exchange and buy coverage, you might be eligible for a subsidy.”

As for Robin Hunt, she says she may remain uninsured. In the meantime, she’s been applying for any job that might offer health insurance, but so far without success.

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