For years, workers have watched their healthcare outlays rise and benefits shrink, and for some, whether they will have benefits at all suddenly is in doubt. As Wall Street's turmoil sloshes over Main Street, it seems that every day another trusted company files for bankruptcy, succumbs to a takeover, or shuts its doors. Nearly 34,000 businesses filed for bankruptcy in the 12 months ending in June, 42 percent more than the year before—and the word from on high is that this may be just the beginning. If your company stumbles, your healthcare, along with your job and your 401(k), could suffer as well. Many employees may worry they're only a couple of bad balance sheets away from joining the ranks of the nearly 46 million Americans without health insurance.
Costly COBRA. Extending coverage under COBRA, the federal law that gives employees who lose jobs the right to continue coverage under the company's health plan for up to 18 months. The law applies only to companies with 20 or more workers, but some states extend the option to workers from smaller companies such as in California with Cal Cobra.
Taking advantage of COBRA can be costly, however. Workers must pay the full premium—their former share and the former employer's share—plus a 2 percent fee. The monthly tab to cover may be far more than people can afford. There are programs which children can get for lower income households at no cost or minimal costs under Health Families Programs. For those who have little or no health issues, them may be eligible for an individual plan including less costly high deductible plans "Basically, if something catastrophic were to happen, they wouldn’t be bankrupted."
When companies shed workers, COBRA can cushion the blow. But with the average total premium for a family health insurance policy approaching $13,000 a year, many families, cannot afford the expense in their newly strained circumstances. Only about 27 percent of eligible workers elect COBRA coverage, according to a survey by Spencer's Benefits Reports. There is another option for two-earner couples: If one partner still has a job and is covered, the newly jobless spouse can join that plan under special enrollment rules that kick in following a bankruptcy or other "qualifying event."
Employees aren't always left so exposed when a company gets into financial trouble. Another company often takes over the ailing firm, as happened with Washington Mutual, Wachovia, and Merrill Lynch, which were acquired by other banks during the financial meltdown. Employees absorbed into the new firm may see no changes in their benefits, at least not initially. "The new employer may continue the existing program for a period of time." It may be a year or more before employees have to think about changes."
Stable Insurers. A comforting note amid the current economic wreckage is that healthcare insurance providers themselves are unlikely to go under. State regulators keep close tabs on these companies. They must submit quarterly financial statements and annual reports demonstrating sufficient reserves to cover claims. The standard in all states for "sufficient" requires that for every $100 in premiums collected, an insurer must have $250 in reserve. If a company's reserves drop below that level, regulators can effectively take over management of the company until its reserves are back in line.
Troubled insurers can—and occasionally do—become insolvent. If a company loses liquidity because of underperforming investments, for example, it might be unable to pay claims or continue operations, but in those relatively rare instances, claims are covered by a guaranty fund into which all insurers must pay.
In these uncertain times, that's one less thing to worry about.
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