Health Insurance Options When Transitioning from a Job to a Startup

COBRA and what it does for you

A federal law commonly known as COBRA ensures your ability to continue on an employer’s health plan in several situations including when you leave employment. It allows you to continue your employer health plan for 18 months after leaving your job if your employer is large enough to be regulated: 20 or more employees in most cases.

The downside is that you must pay the entire amount that the employer paid: your share of costs plus the employer’s share plus a couple of percent administrative fee. The total amount that you pay each month can be significantly more than you were paying as an employee. You should also know that a few states have also passed additional legislation that extends COBRA to smaller businesses. You state department of insurance will have the most up to date information about your rights in your state.

What is HIPAA and do you need it?

HIPAA is another federal law that covers a number of things, including guaranteed conversion of COBRA continuation into an individual plan. The benefit of the HIPAA guaranteed insurance is that if you have a significant medical condition and cannot otherwise get affordable health insurance, you will be guaranteed a minimum level of coverage and a lower payment than if you were to buy individual insurance without this conversion. You must also stay on COBRA the entire period, though you’ll want to do the HIPAA conversion paperwork well in advance of the end of COBRA.

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To take advantage of this law, you should work with an agent experienced with HIPAA conversion – nobody is going to come to you and tell you about HIPAA guaranteed coverage and sign you up, you’ll have to push for it.  State law comes into play for HIPAA guaranteed options, too, so you’ll want to check with your state department of insurance to learn your rights in your state. HIPAA is there for folks that really need it, but there are other options.

What are my choices?

Other than COBRA and HIPAA options, you can also go out and buy your own individual health insurance policy. This is a great option for those that are in good health, and the younger you are, the lower the rate. Or you can get a small group policy for your business, which will be guaranteed issue, so it’s a good option if you or a family member has a medical condition.

You can get insurance from a spouse’s employer, though you may have to wait until the annual renewal to be added to that guaranteed issue plan, in which case you might stay on COBRA until then, or even consider a short term policy. You could also contract with an employee leasing company that would hire you and lease you to your small business – a way to pay someone else to deal with the legal and benefits hassles.

Summary

When leaving a job with benefits to start your own business, you have a million things to worry about. Make health insurance an easy choice by focusing your energy on the pros and cons of staying on COBRA and converting to HIPAA, versus buying your own individual policy, a small group policy for your business, getting health insurance from a spouse, or less common options like short term health insurance or employee leasing. You should consider all of your options carefully and then make the best choice based on cost, your health needs, and the level of risk that you’re willing to take on medical costs.

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