Another risk associated with carrying medical insurance is the continuation of benefits. This becomes increasingly important with employer provided coverage. The Government has taken steps in order to protect individuals and their families in the instance that their insurance provider ceases to continue coverage.

Health Insurance Portability and Accountability Act (HIPAA)
This piece of legislation is designed to govern the portability of insurance from one plan to another. In the past, it was difficult for an individual to obtain new coverage after being dropped from an existing plan due to any pre existing conditions. The terms of HIPPA are...

  • When switching from plan to plan, health care providers may restrict or exclude coverage for any pre-existing conditions for a period of 12 months (18 months if enrolled late).
  • This restriction or exclusion period can be reduced if a participant shows evidence of prior insurance coverage.
  • For the restriction or exclusion to be reduced, a participant has to show that they have had no break in coverage for a period of 63 days or less.

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)
This act requires that employer provided insurance or group plans allow employees and their families who where previously covered under the policy to elect to have the coverage continued for a period of up to 36 months. The "qualified beneficiary" must have incurred a "qualifying event" that results in the loss of coverage. The plan provisions include...
  • The plan covers a broad array of medical plans including major medical, hospital, surgical, physicians, and dental expense insurance.
  • Employers with fewer than 20 full-time employees are not required to offer COBRA.
  • The COBRA insurance must be the exact same coverage that was previously offered by the employer.
  • Certain plans of the Federal Government and religious organizations are exempt from the act.

Qualified Beneficiary - Is any spouse or dependent of the employee covered one day before the qualifying event has taken place. Any dependent born or adopted by the employee who is currently being covered by COBRA is considered to be qualified.


Qualifying Event

Qualifying Beneficiaries

Duration of Coverage
Termination Employee/Spouse/Dependant Child 18 months
Change from full to part-time Employee/Spouse/Dependant Child 18 months
Enrollment in Medicare Spouse/Dependant Child 36 months
Divorce or legal separation Spouse/Dependant Child 36 months
Death of employee Spouse/Dependant Child 36 months
Loss of dependent status Dependant Child 36 months

If an employer has terminated the employee or knows that a qualifying event has occurred the employer must notify the plan administrator of the event. The plan administrator must then notify the employee or qualifying beneficiaries of the COBRA option.
If the employer does not know of a qualifying event the employee has 60 days to notify the employer. If the employer is not notified within 60 days of the qualifying event, the employee loses the right to COBRA coverage.

COBRA can be expensive and in many circumstances unavoidable. In any event, it is essential to know the details of this type of coverage to properly manage risk.

Practice Question:
John has been employed for 35 years at ABC corporation and has been covered under their HMO plan for all of them. He and his wife Sarah have 3 children, Peter (23), Taylor (19), and Julia (17); all of which are covered under his HMO. 2 weeks ago Peter married his long time high school sweetheart Christine. 1 week ago John was told he is being laid-off from his job at ABC. He is unsure whether he will retire or find a new job. If John were to elect COBRA coverage, who would be covered and what is the maximum amount of time they will be covered?

A. Sarah, Peter, Taylor, and Julia: 36 months
B. John, Sarah, Peter, Taylor, and Julia: 18 months
C. John, Sarah, Taylor, and Julia: 18 months
D. John, Sarah, and Julia: 18 months
E. John, Sarah, Peter, Taylor, and Julia 36 months

Answer: C
The only person not eligible for coverage under the HMO is Peter as his dependent status changed after his marriage. Because he was terminated from his job- John and his dependents are only eligible for up to 18 months of coverage.

Using the example above, John has decided not to retire and found a new job at XYZ corporation. After losing his previous job he elected not to purchase COBRA insurance. He and his dependents had a lapse of medical insurance for 52 days. His new employer offers major medical insurance. 12 months prior to enrolling in the plan John suffered a heart attack and was treated.

2 years after enrolling in the plan, John suffered another heart attack and underwent an operation. The total cost of the operation was $13,000. His insurance company will not cover his surgery, claiming that it is excluded under a pre-existing conditions clause. Can John's current insurance company exclude the surgery and for what reason?

A. Yes, if the condition occurred within a twelve month window before he enrolled in the plan.
B. Yes, John had a lapse of insurance coverage in between jobs.
C. No, Insurance companies cannot exclude for a pre-existing condition if he did not have a lapse of insurance for more than sixty-three days.
D. No, John has exceeded the twelve month window in which the insurance company can exclude for pre-existing conditions.

Answer: D
According to HIPAA, a participant's pre-existing condition can be excluded for a period no greater than 12 months or eighteen months if enrolling late. If John had the heart attack ten months after enrolling, the insurance company would not be obligated to cover the condition. The 63 day lapse of coverage rule only applies if a participant is trying to decrease the length of time a pre-existing condition can be excluded.



Medicare and Hospital Expenses

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