What Happens If My Health Insurance Lapses?
Medical care can be prohibitively expensive. Technological advancements mean that healthcare is more advanced and effective than ever, but those advancements come with a hefty price tag. For most people, the thought of paying for medical expenses out of pocket is out of the question. This is why health insurance is a necessity for many Americans.
Unfortunately, health insurance is far from perfect. It too can be pricey, and the penalties for lapsed coverage can be severe. In some cases, obtaining future health insurance can become extremely difficult. Recent changes in legislation seek to lessen the impact of lapsed coverage, but these too are imperfect. If you’re in the position of possibly losing health insurance, it’s a good idea to review your options and see what you can do to lessen the financial impact of this loss.
How Health Insurance is Offered
There are two primary methods of obtaining health insurance. The first is to enroll in a group plan. These are usually offered by employers, but you can sometimes get a group health plan through a guild, union or other organized group. The way they work is simple. A single entity, such as the business, buys a large number of policies. These are then distributed among employees. The employee and employer each pay a share of premiums; in most cases, the premiums are deducted from the employee’s check. Because risk is shared among multiple insureds, policies are usually more affordable than those purchased by individuals, and most people can qualify for a group plan regardless of their medical histories.
An individual plan, on the other hand, is purchased by an individual directly from the insurance company. These plans are usually more expensive than group plans, and many insurers have traditionally denied coverage to people with preexisting medical conditions. Individual plans are often the only way that self-employed or unemployed people are able to get health insurance.
What Happens After Health Insurance Lapses
If you are enrolled in a group plan, you will lose insurance upon leaving the job that offers the plan. If you stop paying your premiums on an individual insurance policy or cancel the private policy, your insurance will also lapse. Either way, you will need to deal with the potential consequences of lost health insurance. Not only will you risk paying out-of-pocket for healthcare expenses, you also run the risk of losing coverage for preexisting health conditions.
Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), individuals who lose their health insurance benefits after leaving a job are able to continue carrying health insurance on a temporary basis. This prevents them from suffering the consequences of lapsed insurance, but it does come at a price. COBRA policies tend to cost substantially more than the insured would have paid under a group plan. All the same, some individuals find the cost worthwhile or even necessary.
When you are insured, any conditions you have and receive treatment for are covered under that policy and most future policies as long as the insurance does not lapse. This is no longer the case one the policy lapses. If you choose not to carry COBRA, you run the risk of being denied private health insurance in the future due to preexisting conditions.
Every state handles insurance lapse in a somewhat different way. In some states, for example, your insurance can be inactive for 60 days before you can lose coverage for preexisting conditions. It’s important to check the laws for your specific state before making any decisions about whether COBRA is right for you.
Changes Under the Affordable Care Act
Changes to health insurance policies are being made under the Affordable Care Act that affect the way insurance companies handle lapsed policies. Under the act, insurance companies will be limited from denying coverage to individuals with preexisting conditions. That means that even people with lapsed policies should be able to purchase health insurance individually from the state-funded health insurance exchanges. This should remove a substantial amount of stress from people facing unemployment or other losses of insurance.
The Affordable Care Act is not fully functional in all areas yet, however, so buying insurance through an exchange may not be possible in every state. It’s a good idea to see what’s available in your specific state. It’s also worth noting that some states are working to make themselves exempt from the act. Until all of these details get resolved, it’s best to hedge your bets and assume that lapsed coverage is still something to avoid whenever possible.