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. Unfortunately, they may be right.
Cameron Lewis knows how quickly things can come apart. The 45-year-old ex-flight attendant for ATA Airlines got a 5 a.m. call this spring at his La Grange, Ill., home, just an hour before heading for the airport for a Chicago-Dallas flight. Don't bother coming in, he was told. ATA had filed for bankruptcy and closed its doors immediately. That was the end of Lewis's health insurance, too.
Costly COBRA. Lewis could have extended his 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.
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 Lewis, his wife, and their two children would have been over $1,000, far more than they could afford. They enrolled the children at no cost in Illinois's All Kids health insurance program, which bases premiums on family income and size. As a stopgap, Cameron and his wife signed up for a $150-a-month Humana policy with an $8,000 deductible. "Basically, if something catastrophic were to happen, we wouldn't be bankrupted," says Lewis.
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, like Lewis's, 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." But that was no help to Lewis, whose wife's part-time job in medical billing doesn't offer health insurance.
At least COBRA was an option for the Lewises. ATA was a subsidiary of Global Aero Logistics, which continued to operate two other carriers. If a company shuts down entirely, the health plan may be terminated altogether; coverage cannot be extended from a plan that no longer exists.
That's what happened to Mark Przesmicki and his wife, Jo Ellen Soper-Thompson, of Menomonie, Wis. Just over a year ago, Przesmicki, then a long-haul trucker for Menomonie-based Trac Inc., got a call after delivering a load of paper to the Twin Cities: Come back to the yard. The company was shutting down.
The timing could not have been worse. The month before, Soper-Thompson had racked up some $5,000 of expenses for a colonoscopy during which possibly cancerous polyps were removed. Trac normally would have covered her claims. Its health plan was "self-funded"—a common arrangement in which an employer pays claims directly as opposed to purchasing insurance for that purpose. But with Trac shuttered and in liquidation, Mark and Jo Ellen were stuck with the bills. Their $400 August premium had already been deducted from Przesmicki's paycheck and was lost. (If the company had purchased coverage from an insurance company and kept its premiums current, the insurer might have covered the colonoscopy expenses.) COBRA wasn't an option even if the couple had wanted it, because their health insurance had ended.
Quick return. About the only thing the couple recouped was $1,400 of the $2,000 they had deposited into their flexible spending account for medical expenses that year, and that was only thanks to a sympathetic benefits administrator. When Trac called eflexgroup.com, which had administered the company's flexible spending accounts, to ask about the deposits, "We told them, 'Too late, we already sent them back to the employees,' " says eflexgroup.com President Ric Joyner.