What to Do with Health Insurance and Other Benefits When Leaving a Job

By Damon Poeter

When you leave a job, you might have a lot of loose ends to tie up. Avoiding a gap in your health and life insurance coverage while between jobs can be confusing to manage because there are different ways to do so.

Previously, we outlined smart ways to handle financial benefits like a 401(k) when leaving a job. Now we’ll look at an equally important and even more pressing matter – how to ensure you and your family remain covered by the insurance you need.

What to Do About Your Life Insurance

Unfortunately, most employer-backed life insurance policies aren’t portable, says Robert Steen, USAA advice director for retirement and complex financial planning. That means that after you leave a job, you can’t keep your employer-provided policy and maintain your coverage.

That’s because employer-provided life insurance plans are typically basic group life insurance that covers you only for a set amount of time and ends when your employment ends.

Want to find out how much life insurance coverage you need to protect your family financially? Use USAA’s Life Insurance Calculator to discover the answer.

Because you can have a gap in life insurance coverage when you leave a job, Steen advises weighing the purchase of an additional private policy even before you think you might part ways with an employer.

“Group life insurance provided by an employer is a good thing, but it’s not typically the workhorse of a life insurance protection plan for a younger person,” he says. “Instead, consider making something like a 20- or 30-year term policy that covers at least five times your annual income and 100% of your debt as your workhorse.”

What to Do About Your Health Insurance

If the job you’re leaving provided group health insurance, in most cases that policy will end at some point after your final day at work. For example, if your last day is in the middle of the month, you might be covered until the end of the month . . . but that’s it.

If you have another job with health insurance lined up, you may be OK, but there could still be a gap in your coverage, Steen says.

“Even a small gap could be calamitous if you have a health emergency while uninsured,” he says. “Check to see how long your existing coverage will last. If you’re only going to be unemployed within the grace period of your existing plan and have another employer plan lined up, that’s fine.”

Reasons you could face a gap in health insurance coverage after leaving a job include:

  • The health insurance plan at your new job doesn’t kick in until after your previous plan expires
  • The health insurance plan at your new job doesn’t cover things your previous plan did, like dental or vision
  • You don’t have another job with health insurance benefits lined up

Stay on Top of Deadlines

When deciding how to fill in a gap in health insurance coverage, it’s important to keep an eye on the calendar, Steen says. That’s because some options, like COBRA and Affordable Care Act exchanges, have deadlines for applying and filing paperwork after you’ve lost your health insurance – typically 60 to 90 days from the time you lost coverage.

If you miss the deadline to take advantage of a special enrollment period with a marketplace like your state’s ACA exchange, you’ll typically have to wait for the open enrollment period. This might mean you can’t buy insurance on the exchange for months.

Weighing Your Options

What can you do if there’s going to be a gap? Here are a few commonly available options:

1. Buy short-term private insurance. Short-term insurance can be purchased for a predetermined length of time to help get you through an anticipated gap in health insurance coverage.

Advantages: You can avoid a gap in coverage without getting locked into a longer-term plan, although private plans lasting longer than 90 days are increasingly available.

Disadvantages: Short-term plans might not count as ACA-compliant coverage and might not carry preventative-care benefits or preexisting conditions coverage.

2. Buy insurance through the ACA exchanges. Every state has a health insurance marketplace where plans that are compliant with the Affordable Care Act are available.

Advantages: You can purchase a plan outside of the open enrollment period if you qualify based on certain life events, which include losing health insurance provided by an employer.

Disadvantages: Some state exchanges have just one insurer, limiting choice.

3. Apply for Medicaid. If your income and family size meet certain criteria, you might qualify for government-provided health coverage available to some low-income people, families and children, pregnant women, the elderly and people with disabilities.

Advantages: Medicaid provides health coverage at no or low cost.

Disadvantages: Some states haven’t instituted the Medicaid expansion supported by ACA, so depending on where you live, you might not qualify even if you would in a different state.

4. Apply for Medicare. If you’re 65 or older and you or your spouse worked and paid Medicare taxes for at least 10 years, you’re eligible for coverage. In certain circumstances, you may be eligible before you turn 65.

Advantages: You’ve paid into Medicare, and now it’s time to use the benefits.

Disadvantages: In many cases, supplementary coverage is needed to contain health care costs, even with Medicare. There can be cost gaps even when someone is in a prescription drug program. “Medigap” plans are available but can be expensive.

5. Sign up for COBRA. The Consolidated Omnibus Budget Reconciliation Act of 1985

(COBRA) mandates that certain employees and their immediate families be allowed to stay on their employer-administered group health insurance plan for up to 18 months after leaving a job. COBRA enrollees must pay the entire premium themselves, without any contributions by their former employer.

Advantages: COBRA lets you keep the plan you had at your job and can fill any gap in insurance you might have for more than a year.

Disadvantages: Since employers aren’t required to match or otherwise augment your contribution to a COBRA plan, the price you pay could be steep. Also, COBRA is a temporary fix, not a permanent health insurance solution.

6. Switch to your spouse’s health insurance plan. This can be an option if your spouse has employer-provided health insurance that allows coverage of immediate family members.

Advantages: You may be able to avoid a gap in coverage while still enjoying the lower prices of an employer-matched group health insurance plan.

Disadvantages: If you have to wait until an open enrollment period to sign up, you may still be facing a gap in coverage for weeks or months. However, losing your own health coverage may qualify you to enroll in another plan, even if your spouse is the participating employee.

7. Use TRICARE. Active duty and retired service members and their families as well as National Guard or Reserve members and their families may be eligible for a TRICARE plan. Visit Tricare.mil for eligibility and plan details.

Advantages: TRICARE is the last to pay when you have other health insurance – but it’s worth it to find out if you’re eligible for a plan, because it can step in to fill any gap you have in health coverage when leaving a job and it is typically very cost-effective.

Disadvantages: If you left active-duty service before qualifying for retirement benefits, you and your family may not be eligible for TRICARE. However, TRICARE Reserve Select is another option for service members who have left active duty and are in the Reserves or National Guard.

The decisions you face when leaving a job can be difficult. The good news is that there are many choices available for maintaining health and life insurance without risking a gap in coverage. Just remember to talk to your former employer about available options and keep a sharp eye on the deadlines you may have to meet to use them.

As your life changes, so should your health insurance. Let USAA help you find a plan that’s best suited to your needs today.

Robert Steen, CFP®, MBA, is the enterprise advice director for retirement and complex financial planning at USAA. Robert serves as the advice expert on retirement and complex planning topics such as maximizing retirement savings, establishing a retirement income plan, managing financial needs during retirement, estate/trust/inheritance tax planning, charitable gifting and distribution of assets.

This calculator is a self-help tool. You should enter figures that reflect your individual situation. This information is provided for illustrative purposes only. The life insurance needs estimate is based in part on the age and information you entered and results may vary depending on your individual circumstances.

This tool is not intended to offer any tax, legal, or financial advice. It is always a good idea to consult your tax, legal, and financial advisors regarding your specific situation. Furthermore, this tool does not ensure the availability of or your eligibility for any specific product or amount of insurance with USAA Life Insurance companies.

This information is not a complete description of benefits. Contact the plan for more information. Limitations, copayments and restrictions may apply. Benefits, premiums and/or member cost-share may change on Jan. 1 of each year.

Any information you provide is voluntary and will not be considered in connection with a request or application for insurance products/services, and may be used by USAA for marketing and other business purposes as set forth in the USAA Privacy Promise.

We believe the websites and resources we used to gather this information are reliable; however, we cannot guarantee the accuracy or timeliness of the information.

Health insurance solutions provided through USAA Life General Agency, Inc. (LGA) (known in CA and NY as USAA Health and Life Insurance Agency), which acts as an agent for select insurance companies to provide products to USAA members. LGA representatives are salaried and receive no commissions. However, LGA receives compensation from those companies, which may be based on the total quantity and quality of insurance coverage purchased through LGA. Plans not available in all states. Each company has sole financial responsibility for its own products.

USAA means United Services Automobile Association and its affiliates. Financial advice provided by USAA Financial Advisors, Inc. (FAI), a registered broker-dealer, USAA Investment Management Company (IMCO), a registered broker-dealer and investment adviser, and for insurance, USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # OE36312). Investment products and services offered by IMCO and FAI.  Life insurance and annuities provided by USAA Life Insurance Co., San Antonio, TX, and in NY by USAA Life Insurance Co of New York, Highland falls, NY. Other life and health insurance from select companies offered through USAA Life General Agency, Inc. (known in CA (license #0782231) and in NY as USAA Health and Life Insurance Agency). Banking products offered by USAA Federal Savings Bank and USAA Savings Bank, both FDIC insured. Trust services provided by USAA Federal Savings Bank.

TRICARE policies and benefits are governed by public law and federal regulations. Changes to TRICARE programs are continually made as public law and/or federal regulations are amended. For the most recent information, contact your TRICARE regional contractor, TRICARE Service Center, or local military treatment facility.

For services payable by both Medicare and TRICARE For Life, Medicare pays first and the remaining liability may be paid by TRICARE For Life.

For services payable by TRICARE For Life, but not Medicare, such as overseas care, TRICARE For Life pays the same as for TRICARE Standard beneficiaries. Beneficiaries are responsible for the TRICARE Standard fiscal year deductible and cost shares.

“TRICARE” is a registered trademark of the TRICARE Management Activity. All rights reserved.

Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.

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