April 28, 2020
Health Insurance Options for Terminated Employees
Many Americans have health insurance coverage that is
and local governments. In general, most large employers
provided through an employment setting. In light of the
will be subject to COBRA requirements as a result of being
economic repercussions of the COVID-19 pandemic, many
subject to the employer shared responsibility provisions,
Americans may be terminated from jobs through which
which incentivize large employers to offer health insurance
they receive health insurance. Such individuals may need to
coverage to their full-time employees.
identify another source of health insurance to remain
enrolled in plans that cover COVID-19-related services.
For COBRA purposes, an employee’s termination for any
reason other than “gross misconduct” is considered a
Three potential comprehensive coverage options for
qualifying event for the former employee and his/her
terminated employees include the Consolidated Omnibus
spouse or dependent child if such event causes a loss in the
Budget Reconciliation Act (COBRA) continuation
former employer’s sponsored coverage.
coverage, individual health insurance coverage, and
Medicaid. An individual’s eligibility for these coverage
A qualified individual must be allowed to elect COBRA
options depends on a number of factors (e.g., economic
coverage within (at least) 60 days from the later of two
circumstances, family composition, federal/state policies).
dates: the date coverage would be lost due to the qualifying
Even if an individual is eligible for such coverage, the costs
event or the date the beneficiary is sent notice of his/her
associated with some options may be prohibitive given the
right to elect COBRA coverage.
individual’s loss of income due to unemployment.
Coverage
This In Focus provides a brief overview of eligibility,
COBRA coverage must be identical to the coverage
benefits, and costs associated with these different health
available to similarly situated active employees. This is
insurance coverage types. It primarily discusses coverage
often the same coverage that the individual had prior to the
options for terminated employees who can no longer access
qualifying event.
their former employer-sponsored health insurance.
For terminated employees, coverage generally may last for
For married couples in which one spouse’s termination
at most 18 months. Employees may terminate their
results in the loss of his/her (or his/her family’s) health
coverage at any point, and employers may terminate
insurance coverage, the spouse (or family) may be able to
COBRA coverage early for specified reasons (e.g., an
enroll in coverage through the other spouse’s employer if
employer ceases to maintain any group health plan due to
the other spouse is working and his/her employer offers
going out of business).
health insurance coverage. In general, employers offering
health insurance benefits to their employees are obligated to
Employers are not required to pay the cost of COBRA
offer employees who were enrolled in coverage (not
coverage, though they may choose to do so. As such,
sponsored by the employer) a special enrollment period
COBRA continuation coverage may be more expensive
(SEP) in the event that the employee (and/or family) loses
than other coverage options. Employers are permitted to
his/her other coverage and meets certain criteria.
charge the covered individual 100% of the premium (i.e.,
both the portion paid by the employee and the portion paid
COBRA Continuation Coverage
by the employer), plus an additional 2% administrative fee.
COBRA continuation coverage provides terminated
employees, their spouse, and their dependent children with
Individual Health Insurance Coverage
temporary access to a former employer’s health insurance.
Individuals and families may purchase individual health
insurance coverage directly from an issuer in the individual
Eligibility
market. The individual market includes the health insurance
To be eligible for COBRA continuation coverage, an
exchanges (marketplaces), but individuals also can
individual must satisfy the following criteria: (1) work (or
purchase coverage outside of the exchanges.
be the spouse/dependent child of someone who works) for
an employer that must offer COBRA continuation
Eligibility
coverage, (2) experience a qualifying event, and (3) be
In general, individuals may purchase individual health
covered by his/her former employer’s sponsored health plan
insurance coverage sold in the state in which they reside.
on the day before the qualifying event occurs.
For exchange coverage, state residents also must be citizens
or have other lawful status, and they must not be
All employers that sponsor health insurance benefits are
incarcerated (except those pending disposition of charges).
subject to COBRA requirements, except employers with
fewer than 20 employees; church plans; and federal, state,
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Health Insurance Options for Terminated Employees
Federal law requires individual issuers to accept all
pathways, state coverage is mandatory (e.g., low-income
insurance applicants but may restrict enrollment to
children up to 133% FPL), whereas for others it is optional
specified times, such as open and special enrollment
(e.g., pregnant women with annual income between 133%
periods. Terminated employees (and their dependents) who
and 185% of FPL). This results in variability from state to
lose health coverage due to loss of employment (not due to
state. For example, adult coverage differs between states
employee’s gross misconduct) qualify for an individual
with and without the ACA Medicaid expansion.
market SEP. Such individuals may enroll in a plan offered
in or out of an exchange during the SEP.
Medicaid eligibility determinations may occur at any time,
are based on monthly income, and generally apply for 12
Coverage
months. An individual may be retroactively Medicaid
Individual health insurance coverage generally must
eligible for up to three months prior to the month of
comply with numerous federal and state requirements
application, if the individual received covered services and
related to plan features and consumer protections. Included
would have been eligible had he or she applied during that
among the federal requirements are coverage for essential
period. States also may rely on enrollment facilitation
health benefits (EHBs), coverage for preexisting health
strategies (e.g., presumptive eligibility) to immediately
conditions, and a prohibition on using health status as a
enroll individuals for a temporary period until a formal
factor in eligibility or premiums.
eligibility determination is made. The Centers for Medicare
and Medicaid Services (CMS) has identified additional
Individuals who enroll in exchange coverage and meet
flexibilities around the timeliness of Medicaid eligibility
income and other eligibility criteria may receive financial
determinations given the anticipated demand associated
assistance through a federal tax credit and cost-sharing
with the COVID-19 pandemic. CMS also directs states to
subsidies. The credit reduces an eligible individual’s
screen for eligibility and enroll individuals in subsidized
insurance premium; the amount varies from person to
coverage available through the exchanges, Medicaid
person. Individuals must have household incomes that
(including eligibility for Medicaid COVID-19 testing for
generally fall between 100% and 400% of the federal
the uninsured at state option), or the State Children’s Health
poverty level (FPL) to be eligible for the credit. There are
Insurance Program (CHIP). This requirement aims to
two forms of cost-sharing subsidies: one reduces costs for
connect uninsured individuals to the appropriate coverage,
eligible individuals who typically use a lot of health care;
if one is available.
the other reduces costs for all eligible individuals. Eligible
individuals must have household incomes between 100%
Coverage
and 250% FPL and may receive both types of cost-sharing
Medicaid coverage includes a variety of primary and acute-
subsidies.
care services as well as long-term services and supports and
benefit coverage varies across states. Not all Medicaid
Medicaid
enrollees have access to the same set of services. An
Medicaid, authorized in Title XIX of the Social Security
enrollee’s eligibility pathway determines the available
Act (SSA), is a federal-state program that jointly finances
services, with some pathways providing access to limited
medical and related services to a diverse low-income
coverage (e.g., COVID-19 testing).
population. States must follow broad federal rules to
receive federal matching funds, but they have flexibility to
Most Medicaid beneficiaries generally receive services
design their own versions of Medicaid within the federal
through traditional Medicaid—a comprehensive array of
statute’s basic framework. This flexibility results in
required or optional services listed in statute. However,
variability across state Medicaid programs.
states also may furnish Medicaid through alternative benefit
plans (ABPs). Under ABPs, states must provide
Medicaid provides a health care safety net for low-income
comprehensive benefit coverage that is based on a coverage
populations. During periods of economic downturn,
benchmark rather than a list of discrete items and services
Medicaid enrollment increases at a faster rate because job
as under traditional Medicaid. Unlike traditional Medicaid
and income losses make more people eligible. In addition,
benefit coverage, coverage under an ABP must include at
those who were previously eligible but not yet enrolled may
least the EHBs that certain plans in the private health
seek enrollment.
insurance market are required to furnish. Beneficiary cost
sharing (e.g., premiums and co-payments) is limited under
Eligibility
the Medicaid program.
To be eligible for Medicaid, individuals must meet both
categorical (i.e., a group listed in statute) and financial (e.g.,
For more information on the topics covered in this product,
income, assets) criteria in addition to requirements
seeCRS Report R40142, Health Insurance Continuation
regarding residency, immigration status, and U.S.
Coverage Under COBRA; CRS Report R44065, Overview
citizenship. Historically, Medicaid eligibility has been
of Health Insurance Exchanges; CRS Report R44425,
limited to low-income children, pregnant women, parents of
Health Insurance Premium Tax Credits and Cost-Sharing
dependent children, the elderly, and individuals with
Subsidies; and CRS Report R43357, Medicaid: An
disabilities; however, since 2014, 36 states and the District
Overview.
of Columbia have taken up the option to cover non-elderly
adults with income up to 133% of FPL through the
Ryan J. Rosso, Analyst in Health Care Financing
Affordable Care Act (ACA; P.L. 111-148, as amended)
Bernadette Fernandez, Specialist in Health Care
Medicaid expansion. For some eligibility groups or
Financing
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Health Insurance Options for Terminated Employees

IF11523
Evelyne P. Baumrucker, Specialist in Health Care
Financing


Disclaimer
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