Worst Case Scenario: I Lost My Job—and My Health Insurance

Get the facts about COBRA and other options for maintaining health insurance coverage.

Medically reviewed in September 2020

When you learn you will lose your job, one of the first things you may worry about—besides lost income—is your health insurance. If you receive coverage through your employer, it generally ends the day you clean out your desk and walk out the door for the last time.

The easiest solution to a health insurance dilemma is to join a spouse or partner’s plan. If that’s not possible, it’s important to understand the options and act quickly, since they’re time-sensitive. After a layoff, you have three basic options:

1. Pay for COBRA (Consolidate Omnibus Budget Reconciliation Act). 
COBRA is a federal law that allows you to stay on your employer’s plan for up to 18 months after being laid off or fired. (The only reason you wouldn’t qualify is if you’re fired for “gross misconduct.”) The catch: you have to pay for it. That’s not easy when you’ve just lost your job. You may not even have known what your employer’s cost for your health insurance plan was, but now you’ll find out. You may pay up to 102 percent of the cost, to cover some administrative costs. Some employers cover COBRA costs as part of a severance package. It’s worth asking your employer to extend your coverage for a month or two while you get on your feet. If your employer doesn’t come through, you must sign up for COBRA within 60 days of being laid off. Contact your employer if you’re interested in COBRA.

2. Buy insurance in the Affordable Care Act (ACA) marketplace. 
Normally, you can only purchase health insurance through the ACA, also known as Obamacare, during certain open enrollment periods. However, when you have a “life event,” such as losing your job, you qualify for a Special Enrollment Period and can apply at any time during the year. You may qualify for a government subsidy, or even free or low-cost coverage. You may not want to accept the subsidy now, however, if you aren’t sure you will qualify for the subsidy when your annual income is considered. Otherwise, you may have to pay some or all of it back when you file your income tax return.

3. Choose from other health insurance plans. 
You don’t have to purchase health insurance through the marketplace. You can search for individual health insurance plans yourself or use an insurance broker. You may have more options this way, which can be important if you want to use a particular doctor or other health care provider. But you cannot qualify for premium subsidies if you don’t purchase your health insurance through the ACA marketplace.

Of course, you can take your chances and go without health insurance. If you’re healthy and expect to get another job soon, that can be tempting. However, if you’re uninsured more than two consecutive months during the year, you may have to pay a penalty to the IRS unless you meet a hardship or other exemption. Another reason not to go without insurance is that a serious illness or accident can be financially disastrous. While you look for your next career move, make sure you maintain access to medical care and financial protection. It’s one of the most important things you can do for you and your family.

Sally Herigstad is a certified public accountant, personal finance expert and author of Help! I Can’t Pay My Bills: Surviving a Financial Crisis.

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