What Happens to My COBRA When My Ex-Employer Goes Out of Business?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 15, 2021

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Sadly, the answer to this is, it probably goes away.

One of the requirements for COBRA is that there is an active plan available to active employees. If there are no active employees, then there is no active plan. And if there is no active plan, there is no COBRA.

That doesn’t necessarily mean that the insurance coverage stops on the day that the company closes its doors. Even though the business is shut down and there are no longer employees reporting to work for the business of the company, there may still be executives, accountant and HR personnel working at finalizing the shut down. If the coverage is remaining in effect to cover these employees as they do the final audits, send reports to the state and the IRS, figure 401k amounts and send roll-over information to the former employees, etc., then the COBRA coverage will likewise continue. But there is going to come a time when the company’s insurance carrier will have to be notified to cancel the company policy, and when that happens, it’s cancelled for everyone– active employees and former employees on COBRA alike. There simply is no way to keep the policy in force after there are no active employees. Cancelling the insurance policy might be the first thing the closing staff does or it might be the last, but whenever it happens, the COBRA will stop as well.

When that happens, there are a couple of things you can do. You can see whether or not there is an option to convert your existing policy to an individual policy. Depending on state law and the makeup of your policy, this may or may not be an option. If it is not, you can look into short term policies or individual policies. If you are married and your spouse has access to coverage, losing your COBRA will be a qualifying event to join that plan. If you have difficulty finding other insurance, you might want to check with a local insurance broker who can help you. But COBRA has its limits, and one limit is when the business closes down or ends.

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