Health Insurance Policy and COBRA Eligibility
Health Insurance Policy
If a company goes out of business, are the employees eligible for COBRA even though there is no longer a health insurance policy for the company?
In most cases, no. Under the Consolidated Omnibus Budget and Reconciliation Act of 1985 (COBRA), workers who lose their jobs may have the right to continue group health care coverage under their employers' plans. Unfortunately, however, if the company goes out of business and no longer has a group health insurance policy in force, then COBRA coverage is no longer available. One possible exception: union employees who are covered by a collective bargaining agreement may be entitled to COBRA coverage if the agreement provides for a medical plan.
The good news is that employees who are not eligible for group coverage under COBRA may still be able to obtain group health insurance elsewhere. For instance, they may find a new job with an employer who provides health insurance or may be eligible for employer-sponsored coverage through a family member's employer-sponsored plan. And, under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the health coverage they had through their former employer may "count" towards reducing or eliminating any pre-existing condition exclusion that might apply when they seek group health insurance with another employer.
In addition, there are other sources of health insurance at opposite ends of the price spectrum: low-cost or no-cost health insurance coverage through a public program sponsored by their state's unemployment office or more expensive individual health insurance that can be purchased through insurance companies.