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Health Insurance for the Unemployed


Access to essential health care typically requires both an adequate insurance policy and a steady income, and most unemployed Americans lack the assurance of either. Because most health insurance policies in the United States are issued through employers as part of an employee's health benefits, people without jobs are often at a significant disadvantage when it comes to finding an affordable health insurance plan.

In effect, while employee-sponsored coverage helps many working people find insurance benefits at a reduced cost, this system results in hidden costs for unemployed. Often these costs are significant. First of all, when you lose your job, you typically also lose your employer's partial contributions to help you meet the cost of annual premiums. At the same time, individual-purchase plans almost always charge higher premiums than employer-sponsored ones, and often charge more for less comprehensive care. Meanwhile, without health insurance, you will likely be required to pay up-front for medications, doctors visits, and any unanticipated urgent care. These factors can amount to an enormous (and often unanticipated) expense, and pose an even greater liability.

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What to Expect When Shopping for Insurance Plans for the Unemployed

The good news is that there are federal programs and numerous private carriers who have experience helping unemployed adults and their families find health insurance on a temporary basis. Many of these programs require you to apply soon after you leave your job, so research your insurance options promptly.

COBRA Provisions for the Unemployed

You may qualify to hold on to the health benefits offered by your previous employer, for up to 18 months, through a federal provision called COBRA. Through COBRA (Consolidated Omnibus Budget Reconciliation Act of 1986), certain former employees and retirees, as well as their spouses and dependents, are given the right to temporarily extend their access to group health insurance plans available through their previous employer for a period. The temporary duration of COBRA provisions, combined with the relative ease of staying enrolled in the same insurance plan versus the inconvenience of having to apply for other carriers, makes COBRA an excellent option for people who are able to plan their resignation ahead of time.

Who Is Eligible for COBRA?

Eligibility for COBRA is typically extended if you meet the following criteria:

  • The date of your resignation was less than 60 days ago
  • Your employment was terminated for a reason besides gross misconduct (you are eligible if you quit voluntarily, or were laid off for other reasons)
  • You were eligible for employer-sponsored coverage the day before your last date of employment

The bad news is that COBRA can be extremely expensive, since there is no provision that requires employers to contribute to your health plan's premiums. While you are entitled to all of the benefits of the plan available to active employees, you can expect that it will cost significantly more than you're used to paying. In 2003, the average unemployment stipend was $1,100/month, while the average cost of premiums for COBRA continuation was almost two-thirds of that—about $700/month for families. Analyses of unemployed adults' savings and expenditures determined that only 7% could afford COBRA continuation benefits.

Short-Term Health Insurance

If you expect to find another job soon, or if you just recently graduated from college and lost your student health insurance plan, you will want to investigate your options for short-term health insurance. Short-term health insurance, while less comprehensive, will protect you against catastrophic emergencies until you find a long-term solution for financing preventative care. These policies are typically issued in 6 month terms, although some 12 month terms are available.

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Low monthly costs, same-day approval for many applicants, and coverage amounts of up to $2 million make short-term health coverage plans an attractive option for anyone who is in the process of transition. A male in his mid-20s with no preexisting conditions could expect to pay less than $90/month for short-term health insurance—almost 1/3 the average price of COBRA continuation.

The Bottom Line on Health Insurance if You're Unemployed

Being unemployed often means having to significantly change your lifestyle in order to pay for your basic needs without going into debt. Insurance benefits are often seen as an expense that can be cut, even though insurance is designed to ensure that you don't go into debt as a result of unforeseen medical expenses. If a catastrophic health emergency happens before you find a new plan, the bill is your responsibility to pay. Finding an affordable health insurance plan is very important to reduce your risk of going deeply into debt, and to maintain your well being until your situation improves.

COBRA is an ideal option if you are planning ahead of time for an early retirement, if you have a preexisting condition like diabetes that might exclude you from short-term health insurance policies, or if you have enough money invested in savings to cover the high monthly premiums. Short-term health insurance policies are typically better for people with no preexisting health conditions who anticipate being able to find a job within 6-12 months. You will want to talk with an insurance expert before signing up for either health care plan, to evaluate whether short-term health insurance is adequate for the needs of you or your family, and to inquire about your eligibility for these programs.

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